This article first appeared in The Edge Malaysia Weekly on August 2, 2021 - August 8, 2021

THE Sarawak state government has roped in Main Market-listed financial services firm Kenanga Investment Bank Bhd (Kenanga IB) and ACE Market-listed payment solutions specialist Revenue Group Bhd as consortium partners in its application for a digital banking licence from Bank Negara Malaysia, according to sources.

“The Sarawak government’s charge for a digital bank licence is led by its chief minister, Datuk Patinggi Abang Johari Openg, himself. So far, the partners have not been disclosed yet. In any case, the Sarawak government will have a controlling stake in the consortium,” a source tells The Edge.

Historically, Kenanga IB has always been very close to the Sarawak state government, considering that Sarawak-based conglomerate Cahya Mata Sarawak Bhd (CMS) has a majority stake in the local non-bank-backed investment bank.

A check of Kenanga IB’s 2020 annual report shows CMS as the single-largest shareholder of the company, with an 18.75% stake, held through CMS Capital Sdn Bhd, as at April 12.

Its second-largest shareholder is Kenanga Group’s founder emeritus and adviser Tan Sri Datuk Paduka Tengku Noor Zakiah Tengku Ismail, who has a 13.84% stake.

Also listed on the Main Market of Bursa Malaysia, CMS is a diversified group with over 35 companies involved in cement manufacturing, construction materials, construction, property development, financial services, telco infrastructure and other services.

Its substantial shareholders include the Taib family, the Employees Provident Fund (EPF), Lembaga Tabung Haji (LTH) and the Sarawak Economic Development Corporation (SEDC).

“CMS and Kenanga IB have been very strong allies. Kenanga IB is an investment bank, so it could offer a lot of financial products if it wins the digital banking licence. Another competitive edge that Kenanga IB has is its tie-up with Rakuten, arguably one of the most innovative brokers in town,” the source points out.

Rakuten Trade Sdn Bhd is a 50:50 joint venture (JV) between Kenanga IB — the country’s largest independent investment bank by equity trading volume and value — and Rakuten Securities Inc, the second-largest online broker in Japan after SBI Securities. It was officially launched in 2017 as Malaysia’s first completely digital equities broker, with one of the lowest brokerage rates in the country.

Another source tells The Edge that Revenue Group is also in the consortium.

“Revenue Group is a payment provider, so it has a lot of touchpoints. It might actually come up with a ‘buy now, pay later’ product. I believe that would be its strength,” he explains.

A market observer concurs that Revenue Group has its own value-add.

“I am not surprised if some companies like Revenue Group are also involved in the consortium bidding for digital banking licences. Revenue Group is not the type of company that likes to make big announcements on Bursa Malaysia,” he says. “But personally, I don’t think Revenue Group, by itself, has the know-how to run a digital bank, because it is a totally different ball game. It would make better sense if it partners with the likes of Kenanga IB.”

Based on the latest available public information, Revenue Group has four substantial shareholders, including its three co-founders Brian Ng Shih Chiow, Dino Ng Shih Fang and Datuk Eddie Ng Chee Siong, who currently own direct stakes of 14.03%, 11.86% and 11.195% respectively.

Coincidentally, the fourth-largest shareholder is Kenanga Growth Fund, with a 7.37% stake.

Separately, Kenanga Shariah Growth Opportunities Fund, Kenanga Growth Opportunities Fund, Kenanga Islamic Fund and Kenanga OnePRS Growth Fund are also among the top 30 shareholders of Revenue Group, with a collective stake of 2.25%.

Interestingly, the source highlights that before Kenanga IB and Revenue Group came into the picture, the Sarawak state government was initially exploring the possibility of a tie-up with South African digital bank TymeBank.

“TymeBank was supposedly interested in joining the consortium, but it eventually pulled out. In my opinion, TymeBank would have been a strong partner for the Sarawak state government, because it has a strong track record in running a full-fledged digital bank in South Africa,” he observes.

Earlier in February, Reuters reported that TymeBank was looking to apply for a digital banking licence in Malaysia, its co-founder and executive chairman Coen Jonker stating that the group was “in the final stages of closing in on an exclusive partnership with a consortium”.

It is unclear if TymeBank is still pursuing the licence, but Bank Negara had received 29 applications at the end of the application period on June 30. The central bank said it may issue up to five licences, and successful applicants will be notified in the first quarter of 2022.

“A diverse range of parties have submitted applications for the digital bank licence, including banks, industry conglomerates, technology firms, e-commerce operators, fintech players, cooperatives and state governments,” Bank Negara said in a press release on July 2, without naming the parties.

The regulator stressed that successful applicants that meet all prudential criteria will be expected to contribute towards greater financial inclusion by offering products and services to address market gaps in the underserved and unserved segments. This includes promoting suitable and affordable financial solutions by leveraging innovative technology applications.

In Malaysia, the central bank requires a digital bank to maintain minimum capital funds of RM100 million, unimpaired by losses, during its foundational phase — that is, the first three to five years. After the foundational phase, the amount is increased to RM300 million.

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