The world of Islamic finance could get a major boost in the Malaysia market and possibly beyond if merger talks between CIMB Group, RHB Capital and Malaysia Building Society lead to a new financial titan with $188 billion of assets, analysts say.

The world of Islamic finance could get a major boost in the Malaysia market and possibly beyond if merger talks between CIMB Group, RHB Capital and Malaysia Building Society lead to a new financial titan with $188 billion of assets, analysts say.

If the trio come together, the combined assets will surpass Maybank’s MYR560 billion ($176.1 billion) and catapult it as the ASEAN region’s fourth-largest bank behind the Singaporean triumvirate of DBS, United Overseas Bank and OCBC, Business Monitor International said in a report.

Its report was entitled Merger Could Trigger Islamic Banking Boom.

“With the continued integration of ASEAN economies ahead of the ASEAN Economic Community to be launched by end-2015, opportunities for cross-border lending are likely to grow,” the report said.

Earlier in July, CIMB, RHB Capital, which is Malaysia's fourth largest bank, and Malaysia Building Society, said they had entered into a 90-day exclusivity agreement to negotiate the proposed merger.

“The creation of a so-called mega Islamic bank….would not only allow the bank itself to gain access to lucrative deals, such as designing and distributing Islamic bonds (or sukuk), but it would also pave the way for other Malaysian entities to expand,” the report said. (Sukuk are a form of finance that are designed to comply with Islamic bans on charging interest on borrowed money, while replicating some of the protections for lenders that conventional bonds are supposed to contain.)

“Given the varying interpretations of Islamic law, industry practices tend to differ, and Malaysia has an opportunity to internationalise its own brand of Islamic finance, which is considered to follow a more straightforward method,” Business Monitor International said.

The report said sukuk issuance is expected to rise by around 14 per cent globally this year. With traditional lending growth on the wane, the merger of the banks, and consequent boost to Islamic finance, could be a “shot in the arm”, the firm added.

According to figures up to December last year, Malaysia remains the largest Asian country to house Islamic funds in terms of assets worldwide, sharing space with Saudi Arabia, which if combined will comprise 63.1 per cent of the total industry assets under management. (Source: Malaysia International Islamic Financial Centre.)

Separately, Maybank, the country’s biggest lender, has reported said it is unconcerned by the possible entry of rival CIMB into the Philippines.

CIMB-Principal Asset Management in Thailand, part of Malaysia’s CIMB, has, meanwhile, agreed to acquire Finansa Asset Management Thailand for just over $7 million as it seeks to bolster its market reach in the region.