Wednesday, 12 July 2017

(The Star) Moody’s sees more competition for deposits

PETALING JAYA: The merger of Malaysia Building Society Bhd (MBSB) and Asian Finance Bhd (AFB) will lead to stiffer competition among smaller Islamic banks to secure deposits, according to Moody’s Investors Service.

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

“MBSB’s credit profile would be enhanced because the acquisition of AFB and its Islamic banking licence would give MBSB access to cheaper funding and broaden its revenue stream,” said Moody’s vice-president and senior analyst Simon Chen in a statement.

He said MBSB’s entry into the current and savings account deposit market would further intensify competition for low-cost deposits among institutions that are not part of big integrated banking groups.

“Nevertheless, while competition among Islamic banks is growing, their profitability remains robust,” he said.

Moody’s analysis is contained in its report entitled Islamic Banking – Malaysia: Potential merger is credit positive for MBSB but will raise funding pressure on sector, written by Chen.

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

Moody’s explained that the MBSB-AFB proposed merger is driven by unique circumstances that are not shared by the other Islamic banks in Malaysia.

The ratings agency said the growth potential of Islamic banks in Malaysia was strong, given the availability of well-established infrastructure and growing consumer awareness of syariah-compliant products. The stable macroeconomic environment is also supportive of credit demand for all banks in the country.