Malaysia's banks have met the latest deadline in a merger program to create stronger groups but analysts say the hardest part — making the forced marriages work — has just begun.
The country's 54 banks and finance houses are consolidating into 10 banking groups under a sweeping central bank plan to make the sector more competitive when the sector is opened to foreign competition.
They qualified for major tax breaks by completing sale and purchase agreements by August 31. But there were disputes over pricing and management control, with five groups finalizing deals only at the eleventh hour.
Analysts say such discord could create further obstacles in the integration of the institutions and might delay the entire process.
Most analysts also say the consolidation is insufficient to prepare for competition with global giants and predict a second wave of mergers in the long term.
Bank Negara (the central bank) has given the 10 groups until December 31 to complete their mergers and start operating as combined entities.
The bank in July 1999 unveiled a tough program of forced mergers to create six big groups but later relaxed the plan. It gave banks freedom to pick their own partners and raised the number of groups to 10.
The "anchor banks" leading each group are Bumiputra-Commerce Bank, Malayan Banking, RHB Bank, Public Bank, Arab-Malaysian Bank, Hong Leong Bank, Perwira Affin Bank, Multi-Purpose Bank, Southern Bank and EON Bank.
Nizam Idris, regional economist with British research house I.D.E.A. in Singapore, said the "climate for mergers" has not been conducive from the start.
"In the long run, the marriage won't be perfect because it is forced on them. This means that Malaysian banks are still susceptible and not as strong as the government would like them to be," Nizam said.
"The difficult part now is implementation. It is going to be very, very tough — how they are going to deal with the different work cultures and physically merge their businesses."
The Business Times, in a recent editorial, said the "real work" has now begun for the 10 groups and it would be a "long process" before total integration can be achieved.
Despite the mergers, the newspaper warned that some of the 10 groups "look less likely able to weather any foreign challenges unless they do some serious tinkering in their operations."
"It is likely that for them to prosper in future, further consolidation is necessary, making them bigger and stronger entities or else to evolve into specialized units catering to niche markets," the paper said.
"The current domestic merger exercise should just be a start. The reality of an open market would suggest that even 10 is too many."
Andrew Chuah, banking analyst at Mercury Securities, predicted it would take another one to two years for the 10 groups to fully consolidate operations.
"At this point, it still looks quite shaky whether the alliances announced will actually hold. Their integration will take longer to push through," he said.
Gan Kim Khoon, Arab-Malaysian Securities research chief, said it was too early to tell if the mergers would be effective.
Gan said the consolidation would be closely watched over the next one to two years for its effects on loans growth, cost savings, possible staff layoffs and the enhancement of return on equity.
He said the mergers did not mean Malaysian banks would be competitive enough when the sector is eventually liberalized. He foresees a second round of consolidation "maybe five years down the road."
Mercury's Chuah agreed that Malaysian banks were still far from the international mark.
"In terms of global competition, we are still not going to be up there but we are now better than where we were previously. There has been progress but there is still work to be done," he added.— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
