MBSB all set to become the country's second largest Islamic banker

Malaysia Building Society Berhad (MBSB) has always made known its intention to become a full-fledged bank.

Admittedly, the group is not up there yet to be among the big boys such as Maybank, CIMB, RHB and Public Bank.

However, MBSB which is known as a "boutique" financial services group made huge strides in the past two weeks.

MBSB which is one of the country's smallest banks announced last week the near completion of its merger with another financial services group MIDF or the Malaysian Industrial Development Finance.

With the announcement, the merger between MBSB and MIDF which was previously owned by Permodalan Nasional Bhd is headed for an agreement by year-end.

"The agreement between MIDF and MBSB is more or less complete," a PNB source told DagangNews.com.

What is next for the enlarged entity?

With the near completion of the merger which received Bank Negara Malaysia's approval in April this year, MBSB is set to become the country's second largest Islamic group.

The combined MBSB and MIDF financial services group have cemented their position to become the country's second largest Islamic group by assets.

Only Bank Islam which has total assets of some RM80 billion trump the MBSB and MIDF merger into second place with total assets of almost RM60 billion.

The MBSB Group is slowly but surely growing its assets and value proposition to garner a bigger chunk of the Islamic banking pie in the future.

For the record, Maybank Islamic has the biggest assets but it does not count as Maybank Islamic is part of the Maybank Group and not a standalone Islamic bank such as Bank Islam and MBSB.

MBSB and MIDF each have their own strengths, of which MBSB is strong in retail products while MIDF is strong in research and investment banking.

Post-merger, the group will complement each other and become a force to be reckoned with.

Islamic banking on the rise

Global Islamic banking has always been surging over the past few decades.

Moody's Investors Service said earlier this month, Malaysia’s Islamic finance industry is expected to grow faster than conventional banking with growth driven by the retail segment in 2022 and 2023.

Malaysia's total Islamic banking assets currently stand at around RM1.1 trillion or some 32.4 percent of total banking assets in the country.

Thus, it will be beneficial for the MBSB group which is 62 percent owned by the Employees Provident Fund to step up and ride on the Islamic banking growth.

Furthermore, Islamic banking has carved a good name for itself among Muslims and non-Muslims alike in the country and abroad due to its interest free nature.

Challenges ahead

Investors are positive that post-merger, MBSB shares could strengthen slightly.

"MBSB shares are the cheapest banking shares currently and it has been that way for the past 4-5 years 

With the rising inflationary pressures, MBSB shares could improve slightly to 60 cents from 54 sen currently but in the future, who knows?

It may buckle due to the challenging inflationary pressures," Ariff Irfan said on KL Investors forum.

Meanwhile, Kenanga Research said MBSB’s stock dividend prospects this year might be attractive at 6-7 percent.

However, the challenging banking environment due to higher interest rates spark concerns of further earnings disappointments weighing down sentiment and capital returns for the stock. 

"Still, we reckon the positive developments in its MIDF acquisition could boost short-term sentiment," Kenanga said in a recent research note to investors.

Being different than the others

Prior to the merger, MBSB has always been strong in offering niche products for specialised markets.

MBSB has built a strong brand name for itself via it's personal loan products, housing and car loans and others.

The enlarged MBSB can now tighten their grip on their niche markets and consolidate their existing customers while at the same time win new customers.

Over time, MBSB which will be a universal Islamic lender will grow exponentially and step out of the shadows of the big boys. – DagangNews.com