July 11 (Bloomberg) -- CIMB Group Holdings Bhd. said it received central bank approval to begin merger discussions with RHB Capital Bhd. and Malaysia Building Society Bhd. to create the country’s biggest banking group by assets.
The companies, which have a combined market value of about $28 billion, entered into a 90-day exclusive agreement to negotiate and finalize the price and structure of the merger, according to a joint statement from the lenders yesterday. The plan includes the creation of a mega Islamic bank, they said.
A combination of the three banks would create a group with total assets of 597.3 billion ringgit ($188 billion) at the end of last year, surpassing Malayan Banking Bhd.’s 560.4 billion ringgit, data compiled by Bloomberg show. The move comes three years after Kuala Lumpur-based CIMB scrapped talks to purchase RHB Capital.
“We believe there is inherent value and that there will be many opportunities which will arise from this proposed merger,” Kellee Kam, group managing director of RHB Capital, said in the statement. “We hope to explore this further through our discussions.”
Employees Provident Fund, the country’s biggest pension manager, owns a 14.5 percent stake in CIMB and a 41.3 percent interest in RHB Capital, according to data compiled by Bloomberg. The fund owns 65 percent of Malaysia Building Society, the data show.
RHB Capital rose 5.3 percent to close at its highest level since August 2011. It earlier jumped as much as 11 percent. Malaysia Building Society gained 5.1 percent to its highest close since October. CIMB fell 3.3 percent, the most since Aug. 28. The FTSE Bursa Malaysia KLCI index slid 0.5 percent.
“A bigger-sized bank with a more solid footing in the domestic market will be in a better position to grow,” Harsh Wardhan Modi, an analyst at JPMorgan Chase & Co. in Singapore, said yesterday. “Malaysia has always been an intensely competitive market.”
Lenders in the Southeast Asian nation are required to obtain the central bank’s approval before any merger negotiations can proceed. CIMB, RHB Capital and Malaysia Building resumed trading today after they were halted yesterday for the announcement.
CIMB and Maybank, Malaysia’s two biggest lenders, scrapped separate talks to acquire RHB Capital in June 2011 over concerns about price, people familiar with the matter said at the time.