KUALA LUMPUR (NewsRise) -- A proposal to merge one of Malaysia's smallest banks with a state-controlled financing firm has been scrapped after the companies failed to agree to the deal's terms.
The proposed merger of Bank Muamalat Malaysia, a unit of conglomerate DRB-Hicom and Malaysia Building Society, which mostly offers home and personal loans, would have created a lender owning assets to the tune of about 60 billion ringgit ($14 billion), analysts say.
The parties involved have not been able to reach an agreement on the terms and conditions of the proposed merger after a series of discussions that began in September last year, DRB-Hicom said in an exchange filing.
"Accordingly, the parties have mutually agreed to end discussions and will not proceed with the proposed merger," it added.
The unlisted Bank Muamalat is 70%-owned by industrial conglomerate DRB-Hicom with the remaining 30% held by Malaysia's state investment company Khazanah Nasional. The national pension fund Employees Provident Fund meanwhile owns a 65% stake in Malaysia Building Society.
DRB-Hicom and Malaysia Building Society were given until Tuesday to conclude the merger talks after the lenders secured the central bank's approval to extend the initial deadline of December 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," Malaysia Building Society's chief executive Ahmad Zaini Othman said in a statement. "Unfortunately despite these efforts, we were not able to commonly agree on that position."
Analysts say the collapse of the latest round of talks was not a major surprise as it follows failed merger attempts in the past amid weak economic conditions. Tuesday's announcement mark the second such failure for both the lenders, each of which had pursued different merger initiative earlier.
Malaysia Building Society previously was party to a proposed three-way merger with CIMB Group Holdings and RHB Capital, Malaysia's second-largest and fifth-largest banks by assets respectively.
In 2011, Bank Muamalat pursued potential merger with Bank Islam Malaysia, the country's oldest Islamic bank, "to add value and enhance the development of Islamic finance in Malaysia." Bank Islam said it was unable to consider such merger.
Islamic finance, an industry managing over $2 trillion of assets, differs from conventional financing in its compliance with Shariah, or Islamic law, which among other things bans the charging of interest and speculation.
DRB-Hicom has more pressing needs" for this deal due to requirement by the central bank to pare down its stake in Bank Muamalat, said RHB Investment Bank analyst David Chong.
DRB-Hicom was mandated by Bank Negara Malaysia to cut its stake in the unlisted Bank Muamalat to 40% from 70% when it took over the Islamic bank in 2008.
Malaysia Building Society meanwhile has been seeking means to scale up to compete in a nation of 30 million people where 27 local and foreign commercial banks fiercely jostle for business.
"For MBSB, with or without this deal, they have set out the target to become a fully-fledged financial institution, so they will just go back to that plan," said RHB's Chong.
DRB-Hicom, which assembles vehicles ranging from Honda motorcycles to tanks developed by the Turkish defence company FNSS Savunma Sistemleri, has been seeking to streamline businesses and sell off non-core assets.
Shares of DRB-Hicom rose 1.0% at 1.05 ringgit while Malaysia Building Society fell 2.1% at 1.42 ringgit. That compares to the benchmark FTSE Bursa Malaysia KLCI's 0.8% decline on Tuesday.