Smaller Islamic banks to face stiffer competition

SINGAPORE:

If the merger between Malaysia Building Society Bhd (MBSB) and Asian Finance Bhd (AFB) is successful, competition for deposits among smaller Islamic banks in Malaysia will intensify, says Moody’s Investors Service.

Moody’s said such a deal would likely lead to the larger of the two financial institutions, namely MBSB, emerging as the surviving entity.

“MBSB’s credit profile would be enhanced because the acquisition of AFB and its Islamic banking license would give it access to cheaper funding and broaden the revenue stream,” said vice president and senior analyst,

MBSB’s credit profile would be enhanced because the acquisition of AFB and its Islamic banking license would give it access to cheaper funding and broaden the revenue stream. Simon Chen, MBSB vice president and senior analyst

Simon Chen, in a statement here.

“The entry of MBSB into the current and savings accounts deposit market would further intensify competition for low-cost deposits among institutions that are not part of big integrated banking groups.

“N eve rt h e l e s s, wh il e competition among Islamic banks is growing, their profitability remains robust,” said Chen.

Moody’s analysis is contained in a just-released report titled, “Islamic Banking - Malaysia: Potential merger is credit positive for MBSB but will raise funding pressure on sector,” and authored by Chen.

The report said that broader sector consolidation is unlikely for now, because the favourable operating environment will allow standalone Islamic institutions, to fare well on their own.

It explained that the MBSBAFB proposed merger is driven by unique circumstances that are not shared by the other Islamic banks in Malaysia.

The growth potential for Islamic banks in Malaysia is strong, given the availability of wellestablished infrastructure and growing consumer awareness of Shariah-compliant products.

The stable macroeconomic environment is also supportive of credit demand for all banks in the country, Moody’s said. — Bernama