Malaysia Building Fails in Second Bid to Create Islamic Bank

  • MBSB ends merger talks with Bank Muamalat's large shareholders
  • The lender is controlled by country's biggest pension fund

Malaysia Building Society Bhd., a lender controlled by the country’s biggest pension fund, failed in its second attempt in about a year to become an Islamic bank after ending merger discussions with the owners of Bank Muamalat Malaysia Bhd.

MBSB and Bank Muamalat’s major shareholders, Khazanah Nasional Bhd. and DRB-HICOM Bhd., couldn’t agree on terms for the proposed merger, the companies said in separate stock exchange announcements Tuesday in Kuala Lumpur. The companies decided not to proceed with the planned merger after missing the regulator’s deadline twice to conclude talks, getting approval for the deal on Sept. 30.

“All parties have diligently been working towards formulating a position that would best strengthen the new merged entity as well as serve the best interests of all shareholders,” MBSB Chief Executive Officer Ahmad Zaini Othman said in a statement. “Unfortunately despite these efforts, we were not able to commonly agree on that position.”

A previous plan by MBSB to combine with CIMB Group Holdings Bhd. and RHB Capital Bhd. collapsed in January 2015. MBSB, a non-bank financial institution controlled by the Employees Provident Fund, has been seeking to turn into an Islamic lender since then and the company was trying to raise its loan-impairment coverage standards to address a concern raised in previous discussions with the bigger rivals.

Shares of MBSB fell 2.8 percent as of 2:37 p.m. in Kuala Lumpur after the announcement was made, bringing the decline in the past year to 34 percent. In comparison, the benchmark FTSE Bursa Malaysia KLCI Index has dropped 8.1 percent in the past 12 months.

Malaysia trimmed its growth forecast for a second year last week after a decline in oil prices crimped the outlook for exports and government revenue. MBSB revised its strategy in the final quarter of last year to adapt to changes in the economy and has turned more prudent in lending, Ahmad Zaini said.

“There is a lot of value in MBSB even though we are not a banking institution,” he said. “We should still continue to add to this value regardless of the status that MBSB holds.”

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