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Malaysia’s ‘Mega-Islamic Bank’

With a surge of initiatives across the globe, Islamic finance displays its relevance and impact on the modern world; South Africa has become the third non-Muslim country to provide Islamic bonds (sukuks), American bank Goldman Sachs has learnt from its past mistakes by raising US$500m from an Islamic bond sale and, according to forecasts from Ernst & Young LLP, Islamic financial assets will globally rise to $3.4 trillion by 2018.

In July, initiatives went underway in Malaysia to create what has been dubbed a ‘mega-Islamic bank’. Malaysia’s second largest bank, CIMB Group Holdings Bhd, along with RHB Capital Bhd and the Malaysia Building Society Bhd secured regulatory approval to begin their merger talks; in which they agreed to a three-way merger valued at 72.5 billion ringgit ($22.3 billion) creating Malaysia’s largest bank by assets. The deal is expected to be concluded by the middle of 2015.

The ‘mega-Islamic bank’ will displace Maybank (Malayan Banking Bhd.) as the largest lender in Malaysia in terms of assets. The combined assets of the three banks will be around $188 billion, or 597 billion ringgit, higher than Maybank’s assets of $171 billion, or 560 billion ringgit (a figure based on the asset valuations of their 2013 balance sheets). The merge of these banks to create a ‘mega-Islamic bank’ will also rank it as the fourth biggest bank in Southeast Asia next to Singapore’s banks; the largest bank at present is DBS with assets of $337 billion or 419 billion SGD.

The significance of the merge revolves around the fact that Malaysia is the third-largest economy in the bloc of ASEAN states (Association of South-East Asian Nations). The combined assets of the banks and its rank among other Southeast Asian competitors may also encourage others to follow suit and merge to take advantage of the closer integration among the members of ASEAN.

According to Bloomberg, James Lau, who oversees $300 million as an investment director at Pheim Asset Management Asia Sdn. in Kuala Lumpur, said, “A bigger banking group will enable the enlarged entity to widen its regional footprint”. Continuing on, he stated that, “other banks are watching the outcome and how it might impact on their market positioning”.

As Malaysia is considered a global leader in Islamic finance, such initiatives may occur in other areas of the Muslim world and elsewhere. If the merger proves to be successful, it could set a precedent for other banks to follow suit as they expand their Islamic products globally. It may also help to internationalise the Malaysian model of Islamic finance by creating a standardised model for others to adopt. Industry practices which vary due to different interpretations of Shari’ah could be homogenised eliminating disagreement over the design of a product by adherence to a uniform Malaysian model of Islamic finance.

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