A Review on the Merging of Malaysian Banks

Topics: Bank, Banking, Financial services Pages: 37 (12214 words) Published: January 6, 2008
Table of Contents
Table of Contentsi
Table of Figuresii
Table Indexiii
Chapter 1: Introduction2
1.2Overview of Mergers and Acquisitions (M&A)3
1.3Research Problem3
1.4Objectives of the Research4
1.5Scope of the Study4
Chapter 2: Literature Review5
2.2The Roles and the Consequences of Bank Mergers5
2.3The Challenges to Bank Mergers Success8
2.4The Post-Merger Performance of the Local Banks and the Foreign Banks11 2.5Impact of Bank Merger to the Future15
Chapter 3: Research Methodology20
Chapter 4: Discussion, Analysis and Finding21
4.1The Role and the Consequences of Bank Mergers21
4.2The Challenges to Bank Mergers Success26
4.2.1Foreign Competition27
4.2.2Competition from Capital Markets27
4.2.3Profit squeeze28
4.2.4Targeting New Lending Segments31
4.2.5Venturing into New Activities31
4.3Local Banks and Foreign Bank Post Merger35
4.4The Impact of Bank Merger to the Future49
Chapter 5: Conclusion & Limitation52

Table of Figures
Figure 1: Research Methodology Framework20
Figure 2: Number of Banks23
Figure 3: Merger Program for Domestic Banking Institutions, as of the end of 200124 Figure 4: Objectives of Restructuring the Banking Sector25
Figure 5: Foreign Banks' Branch Network – Current and Potential42 Figure 6: Market Share of Domestic Loans43
Figure 7: Ranking by Asset Size (2002, 2005)44
Figure 8: Ranking by ROEs45
Figure 9: Net Profit/ Branch Comparison (excluding Citibank)45 Figure 10: Net Profit/Employee Comparison45

Table Index

Table 1: Return-On-Assets Ratios Of The Top 10 Banks In 200137 Table 2: Return-on Equity Ratios of the Top 10 banks in 200139 Table 3: Key Financial Indicator for the 10 Anchor Banks46

Mergers and Acquisitions (abbreviated M&A) exercises taking place in Malaysia are just the beginning of a strategic transformation to enhance and upgrade the quality of the domestic financial sector to world class status, preparing them to embark on open competition in line with the World Trade Organization's (WTO) agenda for services. The second pressure for smaller domestic banks is the increasing scale of the three biggest banks, which are leaving most of the smaller banks behind. It is obvious that the smaller banks will neglect the window of opportunity to capitalize on their position as new anchor banks after the first wave of consolidation at the turn of the millennium. In general, this study aims to investigate the impact of the merger to the Malaysia banking industry as well as the impact of the liberalization of the financial market in Malaysia.

Chapter 1: Introduction

Mergers and Acquisitions (abbreviated M&A) can be generally defined as activities involving takeovers, corporate restructuring, corporate control as well as changes in the ownership structure of firms in any industry. The past few decades have witnessed the fact that worldwide merger activity has increased dramatically. Individual transactions in terms of M&A are becoming larger and many of them are cross-border in nature. Many factors are affecting the M&A activities such as technological change, deregulation, and efficiency operations.

According to the Malaysian Accounting Standards Board (MASB) No 21, "merger" is defined as a business combination in which shareholders of the combining enterprises combine control over the whole, or effectively the whole of their net assets and operations to achieve a continuing mutual sharing of the risks and benefits attaching to the combined entity such that neither party can be identified as the acquirer. A merger is an important growth option. Merged enterprises are said to gain from economies of scale, benefit from cash flow savings, procure new customer base and eliminate business rivalry (Bala Shanmugam...
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