AFTER a long delay, the merger of development financial institutions (DFIs) Bank Pembangunan Malaysia Bhd (BPMB), Small Medium Enterprise Development Bank Malaysia Bhd (SME Bank) and Export-Import Bank of Malaysia Bhd (Exim Bank) is finally set to happen, likely within this quarter, sources say.
According to industry sources, Bank Negara Malaysia has greenlighted the proposed transaction.
“If things go as planned, an announcement on the merger is expected within this quarter, perhaps as soon as this month, in which case the actual transaction could be completed by the end of March,” one of them tells The Edge.
It is understood that the merger, in which BPMB is expected to take the lead, is to be effected by a share swap.
BPMB declined to comment when contacted.
Back in 2019, the government had proposed that the country’s DFIs be merged under one entity through a two-phase approach to strengthen the DFI ecosystem and drive efficiency.
The first phase, involving the merger of BPMB and Danajamin Nasional Bhd, a financial guarantee insurer, was concluded in March last year, following the transfer of the latter’s business and undertakings to BPMB.
However, the second phase of the merger — that of the enlarged BPMB with SME Bank and Exim Bank — has taken longer than expected to see through. It was initially expected to be wrapped up by the end of last year — as reported by The Edge last May — but pushback from “certain stakeholders” delayed it further, a source says.
The pushback stemmed from certain concerns, including that the soon-to-be-merged entity may not place as much importance on serving small and medium enterprises (SMEs) and micro SMEs (MSMEs). These are segments that SME Bank focuses on.
“Actually, the bigger [merged] entity would be able to serve more SMEs. There’s better risk-taking [ability] and better reach-out, not to mention resources,” the source says.
Last October, during a ministerial question-and-answer session in the Dewan Rakyat, Prime Minister Datuk Seri Anwar Ibrahim assured that the merger would not result in a reduced focus on SMEs and MSMEs.
Industry observers and analysts have pointed out that this was always going to be a tough merger to get going, given the different ministries involved and the ensuing politics and vested interests. However, they note that if the merger goes through and is implemented well, it will allow for more efficient allocation of capital and resources to finance priority segments. DFIs, after all, have a strategic role in the country’s development agenda.
All three of the DFIs in this merger are owned by the Minister of Finance (Incorporated). SME Bank is supervised by the Ministry of Entrepreneur and Cooperatives Development, while Exim Bank comes under the purview of the Ministry of Investment, Trade and Industry.
Once these institutions are merged, there will only be three standalone DFIs left in the country, namely Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat), Bank Simpanan Nasional and Bank Pertanian Malaysia Bhd (Agrobank).
BPMB had an asset size of RM29.26 billion as at end-2023, compared with Exim Bank’s RM6.09 billion. SME Bank had total assets of RM13.01 billion as at end-September 2024.
BPMB, which suffered from weak governance in the past, has shown vast improvement since it undertook clean-up efforts a few years ago under fresh leadership. The institution, which provides infrastructure financing, reported a net profit of RM400.78 million for the financial year ended Dec 31, 2023 (FY2023) compared with RM186.66 million in the previous year.
SME Bank’s net profit for the first nine months of FY2024 was higher at RM43.18 million, compared with RM34.09 million in the same period a year earlier. As for Exim Bank, it returned to the black in FY2023, reporting a net profit of RM37.03 million against a loss of RM60.96 million in FY2022. Exim Bank provides financing and takaful solutions to support the export and import of goods and services as well as overseas projects, among other things.
DFIs typically have a much higher gross impaired loan (GIL) ratio compared with commercial banks, given the higher risks they take on as a result of their developmental mandate. BPMB’s GIL ratio stood at 10.2% as at end-March last year while Exim Bank’s was at 45.6% as at June last year, according to RAM Ratings. SME Bank’s stood at 14.7% as at end-2023. For perspective, the Malaysian banking system’s GIL ratio was at 1.4% at the end of last year.
All DFIs in the country are regulated by Bank Negara under the Development Financial Institutions Act 2002.
Source: https://theedgemalaysia.com/node/743861