PETALING JAYA – Bank Rakyat, Malaysia’s profitable Islamic co-operative bank, has become a takeover target as part of Bank Negara’s bigger plan to consolidate the financial sector.
According to sources familiar with the matter, the idea is being floated around and among the institutions exploring the takeover of Bank Rakyat is Permodalan Nasional Bhd (PNB). Local conventional banks are also said to be eyeing Bank Rakyat.
“It is still at an infancy stage. It’s early days and remains an idea that is being explored,” said a source.
PNB which is the country’s largest fund management company, has three major financial institutions in its stable and is believed to be open to the idea of acquiring Bank Rakyat in a move which could lead to value creation between Bank Rakyat and PNB-controlled companies.
Besides the MIDF Group which is the investment banking and asset management arm of PNB, the fund also controls Malayan Banking Bhd (Maybank) – the largest bank in the country that also has a regional presence.
Other than these, PNB has a 60% stake in Malaysia’s only national reinsurer, MNRB Holdings Bhd which is grossly under-valued. Bank Rakyat, meanwhile, is the biggest Islamic cooperative bank in the country with 147 branches. It had assets totalling RM99.3bil as at September last year and is the second largest Islamic financial institution after Maybank Islamic Bhd.
Bank Rakyat is broadly defined as a development financial institution (DFI) and was established in 1954 under the Cooperative Ordinance 1948 (known as the Cooperative Societies Act 1993.
It is an entity under the control of the Domestic Trade, Cooperatives and Consumerism Ministry.
Apart from this, it also reports to two other parties, namely Bank Negara and the Finance Ministry.
Bank Negara defines DFIs in Malaysia as “specialised financial institutions established by the government with specific mandate to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development objectives of the country.”
Bankers say that as a DFI, Bank Rakyat has always been viewed as a takeover target even as regulators seek to consolidate the banking sector further.
Recall, Malaysia’s banking sector has gone through major consolidation that has seen some 55 financial institutions reduced to the current eight. More consolidation is to be expected as competition within the industry intensifies.
At this point, it is unsure how PNB will fit Bank Rakyat in its portfolio of financial institutions, if the deal materialises.
“The best bet would be to use MIDF as a vehicle to take over Bank Rakyat and create a big Islamic bank,” said the source.
A merger should bode well with the central bank’s aspiration to create a mega Malaysian Islamic bank which would help cement the country’s status as the world’s largest sukuk market and a hub for Islamic finance.
As Bank Rakyat involves individuals and cooperatives as its members as well as reports to more than one entity, it will require approvals at various levels.
Bank Rakyat’s profits have been growing in recent years, fuelled largely by its personal financing business.
For the financial year ending Dec 31, 2015, it recorded a pre-zakat profit of RM2.01bil.
Personal financing accounted for the bulk of its gross financing book.
Bank Rakyat, which recently came under focus for alleged corruption involving its chairman and managing director, is believed to have ambitions to grow its commercial banking segment.
Last month it was reported that Bank Rakyat is looking to enter the Indonesian market in the second quarter of this year after getting approval from the authorities, including Bank Negara.
Towards this end, the bank said, it had signed a memorandum of understanding with Indonesia’s largest bank, Bank Rakyat Indonesia (BRI).
On PNB’s front, quite a bit has happened in its stable of companies since Tan Sri Abdul Wahid Omar took over on Aug 1 last year. Among others, UMW Holdings Bhd in which PNB has a 56.1% stake, is divesting its interest in listed subsidiary UMW Oil and Gas Corp Bhd, while Sime Darby Bhd, in which PNB controls 52.8%, has proposed the listing of its plantation and property businesses to unlock value.