The Malaysian banking regulator gave the go-ahead on 10 July 2014 for CIMB Bank to start talks for a potential merger between CIMB Bank, RHB Capital and Malaysia Building Society (MBSB) to form one the largest banks in the Southeast Asian region.
If the merger pushes through, Maybank will be dislodged from the top spot as Malaysia's largest bank, and the fourth largest in ASEAN.
The merger may portend a race for size for banks not only within Malaysia (as IDC Financial Insights does not expect Maybank to sit idle), but also within the Association of Southeast Nations (ASEAN) especially in the context of the ASEAN Economic Community (AEC), which begins in earnest in 2015.
The Malaysian financial services industry has long hinted at the need for a 'local super-bank' or an 'Islamic mega-bank' and the CIMB-led merger has finally substantiated it. Malaysia's last financial institutions merger of note was in 2011, when Hong Leong and EON Bank merged to form Malaysia's fourth-largest bank by assets.
While there will be much analysis in the next months on the strategic synergies of the deal, IDC Financial Insights would like to focus on the technology implications of the deal:
The Rise of Regional Platforms. CIMB has been lauded on multiple occasions by the analyst community (IDC Financial Insights notwithstanding) as a champion for 'super-regionalization', that is the push by local Asia/Pacific banks to build a network of operations across several markets in the region. Alongside this bid for multi-jurisdictional expansion is the opportunity to build super-regional technology foundations, or IT platforms that are integrated enough to viably support and grow the operations in multiple geographies.
This was what CIMB was building towards with its 1Platform initiative. The five-year old program (now drawing to its conclusion) involved, among others, the creation of a single core banking system with enough local market customization capabilities, as well as the formation of various 'centers of excellence' for application development, delivery and production. The merger will be the first real test for how CIMB's years-long transformation stands to the tests of scalability and integrability, never mind that the three-way merger involves counterparties with a largely-domestic footprint.
IDC Financial Insights has been calling attention to implications of this super-regionalization of technology, and the precedents it sets on hot-button areas like virtualization, networks, shared services, and Cloud Computing. We also advise the vendor community to prepare for even more centralized decision-making similar to the approaches being made by the likes of HSBC and Standard Chartered.
Growth in IT Budgets in Malaysian FSI Tops Out. RHB itself is currently undergoing a core banking refresh of its own, and prospects of this merger will threaten to undo about a year's worth of effort. Alongside this are also several major slated projects including datawarehousing, channels and customer-centricity platforms that promised significant deals for technology server providers and topped up IDC Financial Insights projections for IT budget growth in Malaysian financial services. Should the merger carry through, the market can expect to witness reiterated (and protracted) spending directed toward integration and calibration of such technologies, more so than in its absence. At a recent CIO Roundtable, IDC Financial Insights discussed how the market will grow 8% on a CAPEX basis and OPEX at 5% in 2014 over 2013.
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