Customer using the cash ATM machine at Al Rajhi Bank. Bloomberg/GOH SENG CHONG

KUALA LUMPUR: It is sensible for Al Rajhi Banking & Investment Corp, the world’s largest Islamic lender, to explore merger talks with a Malaysian financial institution to strengthen its position in the country, analysts said.

Saudi Arabia’s Al Rajhi had always been on the lookout for opportunities to bolster its position in Malaysia, they added.

For Malaysia, they said, the potential merger of Al Rajhi’s unit Al Rajhi Banking & Investment Corp (Malaysia) Bhd and Malaysian Industrial Development Finance Bhd (MIDF) may make the domestic Islamic finance sector more robust.

Kenanga Investment Bank Bhd analyst Ahmad Ramzani Ramli said the merger would make sense for Al Rajhi.

“As of now, there is only two Middle Eastern banks in Malaysia namely Al Rajhi and Kuwait Finance House Malaysia Bhd (KFHM), both of which are not that big despite Al Rajhi’s parent company Al Rajhi Banking & Investment Corp being the world’s largest Islamic lender,” he told NST Business.

“Al Rajhi is a small player here, but a merger with MIDF could change that. It is of course too soon to predict what will come out of this merger negotiations, but if it does happen it will definitely make the Malaysian Islamic finance industry more robust,” Ramzani added.

Bank Negara Malaysia had on January 10 given its approval to MIDF and Al Rajhi to begin merger negotiations that if successful, will see the merged entity’s net assets combinations of up to RM2.5 billion, depending on the structure.

Bloomberg had earlier reported that a potential merger would expand the scope of MIDF’s business and give it the right to take deposits.

This will not the first time that a Middle Eastern bank were to merge with a local player.

Malaysia Building Society Bhd had last year realised its goal of becoming a full-fledged Islamic lender after taking over Asian Finance Bank Bhd, which was controlled by Qatar Islamic Bank.

Al Rajhi Malaysia reported a net income of RM48.7 million on RM106 million revenue for the third quarter ended September 30 2018.

MIDF, meanwhile, reported a loss of RM24 million on the back of RM97.3 million revenue for the same quarter.

MIDF’s Islamic net interest income outpaced its conventional income at RM19 million against RM5.3 million during the quarter.

Permodalan Nasional Bhd is MIDF’s parent company and both entities declined to comment when contacted.

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