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Malaysian Central Bank Governor Says Bank Mergers Would Be Good

July 1 (Bloomberg) -- Bank Negara Malaysia Governor Zeti Akhtar Aziz said consolidation among banks would be good for the country and help integrate its financial system with other emerging economies.

“We do envisage there will be future consolidations,” Zeti said in an interview in London yesterday. “If two or three large banks merge in our financial system, I think it is good for Malaysia as we venture into our next phase of development in our financial system where we become more integrated with the rest of the world.”

Her comments come days after CIMB Group Holdings Bhd. and Malayan Banking Bhd., Malaysia’s two biggest banks, scrapped rival talks to acquire RHB Capital Bhd., ending ambitions to create Southeast Asia’s biggest lender. Local banks are seeking expansion amid intensifying competition as the central bank grants more licenses to international lenders including Bank of China Ltd.

“There will be more financial centers in emerging economies that will be highly connected with each other and this is important because it will lead to the better intermediation of funds across borders,” she said. “If we are going to participate in that, we do need to have a few larger banks.”

Zeti said in April that the central bank will let market forces decide how many local lenders remain in the country should there be consolidation. Asked yesterday if RHB should seek a new partner, she said the issue is “entirely up to RHB.”

Speaking on the sidelines of a conference hosted by the Official Monetary and Financial Institutions Forum and Lafferty Group, Zeti said the terms and conditions of any consolidation will be driven entirely by the private sector, though the central bank will set some parameters, one of which is that any transaction shouldn’t “weaken the institution.” The financial industry should support the real economy, not the other way round, she said.

Zeti also said the central bank has “other priorities” than consolidation on its agenda.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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