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NEWS UPDATES Asean Affairs        5  March 2011

Higher foreign stake in Malaysian banks

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A higher foreign equity limit in local banks is a more effective and viable option to improve the competitiveness of the industry compared with issuing new banking licences.

This is because the domestic banking market is “small and already saturated”.

OSK Research said new foreign banks were unlikely to develop the rural banking landscape in small towns as they tended to be more return-on-equity conscious and would rather focus on already saturated but high-income urban townships.

It said this in a report issued yesterday afternoon after Prime Minister Datuk Seri Najib Razak said he was open to the idea of Australia and New Zealand Banking Group (ANZ) increasing its stake in AMMB Holdings Bhd (AMMB) to 49 percent from about 24 percent.

An increase in foreign equity limit would be beneficial as it would encourage the respective foreign strategic shareholders to take a longer-term view of the local bank and potentially committing more resources to help improve the bank's competitive edge, OSK said.

According to a news report, Najib, who is currently on a working visit to Australia, said yesterday he would consider allowing ANZ, Australia's fourth largest bank, to raise its stake in AMMB, the fifth largest banking group among the nine banks here.

The report, citing market talk, also said AMMB chairman Tan Sri Azman Hashim, who holds close to a 17 percent indirect stake in the bank, was looking to sell the stake. AMMB said it had no comment at this juncture.

Currently, regulations governing the local banking sector include a 30 percent cap on foreign equity stake in domestic commercial banks.

The Prime Minister's suggestion yesterday would require Bank Negara approval.

“This could mean that Bank Negara would have to allow a blanket increase in foreign equity limits for all domestic commercial banks in Malaysia,” OSK Research said.

UOB KayHian research head Vincent Khoo said that Najib's announcement signaled further liberalisation of the banking sector and suggested increasing foreign investments in the country. “Depending on what price the stake is sold atthe latest development, if it materialises, should be good for AMMB's share price,” Khoo said.

AMMB finished yesterday 12 sen up at RM6.38 on volume of 8.1 million shares.

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