This article first appeared in The Edge Malaysia Weekly on September 23, 2024 - September 29, 2024
FIVE banks are said to be exploring a potential acquisition of Islamic lender Kuwait Finance House (M) Bhd’s (KFH Malaysia) retail banking portfolio in Malaysia, sources say.
“A request for proposal was sent [by KFH Malaysia] to banks and we gather that five seem to be interested — two foreign banks and three local ones,” an industry source tells The Edge.
It is not immediately known which five banks these are, but sources indicate that Affin Bank Bhd (KL:AFFIN), one of the country’s smallest lenders, has shown interest.
Given that the retail portfolio for sale is small, at just RM2.5 billion, it is likely to attract the interest of some of the country’s smaller Islamic banks rather than the big ones like Maybank Islamic Bhd or CIMB Islamic Bank Bhd.
There are currently 16 Islamic lenders in Malaysia (excluding KFH Malaysia), of which six are foreign.
According to a separate source familiar with the retail portfolio sale, the banks that are interested are doing pre-due diligence. “There are quite a few suitors,” the source says, without saying how many suitors there were.
The Edge understands that suitors were expected to submit a non-binding bid based on an information memorandum provided by KFH Malaysia. If the bid is deemed attractive enough, they would be invited to the next stage where they would have access to much more detailed data on the retail portfolio. “October is probably when a bank would know if it was invited to the next stage,” a source says.
Meanwhile, Al Rajhi Banking & Investment Corp (M) Bhd has quashed market speculation that it may be one of the suitors. “Al Rajhi Bank Malaysia is not involved in any discussions or negotiations regarding the acquisition of KFH Malaysia’s retail business. We are committed to projects that will expand our current business through strategic Islamic finance innovation,” it tells The Edge.
According to sources, neither MBSB Bank Bhd (KL:MBSB) nor Bank Muamalat Malaysia Bhd is pursuing KFH Malaysia’s assets.
“It will really all boil down to pricing. If the pricing is attractive enough, even though the portfolio is small, some banks may be keen on it,” says one source.
In early 2022, Singapore’s UOB banking group agreed to buy Citigroup’s consumer banking businesses in Malaysia, Indonesia, Thailand and Vietnam for about S$5 billion, or about 1.2 times its book value.
KFH Malaysia, which was the country’s first foreign Islamic bank, is selling its retail banking portfolio as part of its exit plan from the country. The lender’s sole shareholder — Kuwait Finance House KSCP — announced on July 31 that it had decided to voluntarily withdraw from the Malaysian market after 19 years of operation here.
The decision to exit followed an international business strategic review to focus on and expand in the Middle East.
In an interview with The Edge last month, KFH Malaysia’s acting CEO Ida Aizun Husin said the bank would issue a request for proposal “in the next couple of months” to solicit bids from prospective buyers such as banks.
KFH Malaysia is a predominantly retail banking-focused group, but it also has two other businesses, namely corporate banking and treasury.
The retail banking portfolio is considered the “gem” within the group and will be sold to the highest bidder.
“Our main objective is to get the best value [for it], considering that we have developed a strong retail banking [business] over the years,” Ida Aizun said.
As at the end of last year, KFH Malaysia’s retail financing assets stood at about RM2.7 billion, comprising both performing and non-performing assets. “We are going to bundle [these] together in the sale. The biggest component of the assets is mortgages, but there is also auto and personal financing. Retail Casa (current account, savings account) deposits — which stood at over RM400 million as at end-2023 — will also be included as part of the retail portfolio sale,” Ida Aizun had said.
The gross non-performing financing ratio of its retail business stood at 1.8% as at the end of last year compared with 1.74% the year before.
KFH Malaysia’s total assets stood at RM7.66 billion as at end-2023, having dwindled from RM10.79 billion seven years ago. It has been profitable in the last three consecutive years, posting a net profit of RM25.99 million in the financial year ended Dec 31, 2023 (FY2023), RM78.1 million in FY2022 and RM73.69 in FY2021, after having made losses in the prior two years. In its 19 years in Malaysia, it had posted losses in seven of them.
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