This article first appeared in The Edge Malaysia Weekly on April 14, 2025 - April 20, 2025

THE Sarawak state government is understood to be looking at buying a stake in another bank and merging it with Affin Bank Bhd (KL:AFFIN), in which it has 31.25% interest, sources say.

It is understood that overtures have been made to Tan Sri Azman Hashim, who holds an 11.83% stake in AMMB Holdings Bhd (KL:AMBANK). However, the talks have yet to bear fruit.

A source reveals that if the merger between Affin Bank and AMMB happens, the merged entity would be the fourth largest banking group in the country in terms of assets. “Sarawak is very keen on having control of a much larger bank,” he says.

AMMB wholly owns AmBank (M) Bhd, the sixth largest banking group in the country in terms of assets. Affin Bank, meanwhile, is one rung below AMMB at seventh among Malaysia’s eight banking groups.

Sarawak will hold no more than 20% equity interest in the merged banking group, another source familiar with the matter says.

Last Thursday, Affin Bank closed at RM2.50, giving it a market capitalisation of RM6 billion, while AMMB’s market capitalisation was RM17.41 billion at last Thursday’s closing of RM5.27.

The Sarawak state government has also been said to have looked at Bank Muamalat Bhd, which is controlled by DRB-Hicom Bhd (KL:DRBHCOM). Sources familiar with the matter say, however, that the Islamic lender is not quite its cup of tea. DRB-Hicom owns 70% equity interest in Bank Muamalat while Khazanah Nasional Bhd holds the remaining 30%.

The state is also understood to be considering Kuwait Finance House (M) Bhd (KFH), which is searching for a buyer to take over its retail loan portfolio as the Islamic banking group wants to exit Malaysia. This has not been fruitful either.

The Edge understands that prior to inking the deal to buy the stake in Affin Bank, Sarawak was eyeing a block in Alliance Bank Bhd. It is not clear if these options will be revisited.

At press time, the office of Sarawak Premier Tan Sri Abang Johari Tun Openg had yet to reply to questions from The Edge.

While the Banking and Financial Institutions Act of 1989 capped institutional shareholders’ holdings at 20%, with Bank Negara having the discretion to approve anything in excess of 20%, the Financial Services Act (FSA) 2013, which governs banks and financial institutions, does not stipulate shareholding limits for institutions.

In the case of AMMB, the overtures by Sarawak are understood to have been made by friendly parties representing the state, to Azman’s representatives, but pricing is an issue.

AMMB is trading at a price-to-book value (PBV) of 0.86 times based on last Thursday’s close of RM5.27. Its share price hit an all-time high of RM5.94 on Feb 12, but has since come off its peak.

Affin is trading at a PBV of 0.52 times while Alliance Bank is trading at a PBV of 0.94 times. 

There are also concerns over which management team will be in the driving seat, as Sarawak is understood to want Affin Bank to lead the merged group.

Nevertheless, AMMB and Sarawak state officials have a very good relationship.

Azman, 86, is currently the chairman emeritus and honorary adviser of AMMB. Based on last Thursday’s closing, his stake is valued at RM2.07 billion. The Employees Provident Fund is the largest shareholder of AMMB with 12.54%.

As an individual, Azman’s shareholding is capped at 10%, according to the FSA. However, under the grandfathering rule, he is exempted from the FSA stipulation as he already owned AMMB shares in excess of the 10% limit before the FSA came into force in 2013.

AMMB was formerly known as Arab-Malaysian Merchant Bank. It was incorporated in 1975 as a joint venture between companies from Bahrain and Malaysia, and its shares were floated in December 1988. In 1992, Arab-Malaysian Merchant Bank underwent a corporate restructuring exercise that resulted in its de-listing, and in its place AMMB was listed.

Bank Muamalat also has shareholding issues which contravene the central bank’s regulations. Bank Negara required DRB-Hicom to pare its stake in the bank to at least 40% when it approved the purchase of a 70% stake in Bank Mualamat in 2008 from its controlling shareholder Tan Sri Syed Mokhtar Albukhary’s vehicle, Bukhary Capital Sdn Bhd, for RM1.07 billion. This matter has yet to be resolved. Syed Mokhtar holds a 55.92% stake in DRB-Hicom.

Sarawak bought a 27% stake in Affin Bank for RM1.78 billion from Lembaga Tabung Angkatan Tentera (LTAT) and its unit Boustead Holdings Bhd last November. Prior to that, the state had mopped up 4.95% in the bank.

The other substantial shareholders in Affin Bank are Hong Kong’s The Bank of East Asia Ltd with 23.93% and LTAT with 22% equity interest. 

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