- Removal of 20% limit on institutions under FSA. The press reported that institutions will no longer be limited to a 20% ceiling on their shareholding in licensed banks under the new Financial Services Act (FSA).

- FSA to be enforced from mid-2013. The new FSA is to be enforced from mid-2013, and replaces the Banking and Financial Institutions Act (BAFIA) 1989. Under BAFIA, there is a shareholding limit of 20% for institutions and 10% for individuals. The individual shareholding limit remains under FSA. However, FSA is silent on the institutional limit, unlike the BAFIA.

- No particular limit for institutions. The Edge quoted a Bank Negara Malaysia (BNM) official as stating that upon the implementation of FSA, the limit of 20% for institutions under BAFIA would be removed.

- Likely to spur more privatisation and M&A speculation. The press reported that this means that EPF may no longer be required to maintain a maximum stake of only 45% in RHB Cap. EPF has an estimated 41.4% stake in RHB Cap, followed by Aabar Investments at 22.4%. We believe this may spur further privatisation rumours of RHB Cap.

- Paves the way for DBS to acquire a larger stake in AFG? With removal of institutional cap, this could also pave the way for Singapore’s banking group DBS Bank Ltd (DBS) to acquire a larger stake in Alliance Financial Group (AFG). Recall that in early April 2012, AFG announced it has received a notice from its major shareholder Temasek Holdings Pte Ltd (Temasek) that DBS had obtained approval from Bank Negara to commence discussions to acquire Temasek’s 49% stake in Vertical Theme. Vertical Theme holds a 29% equity interest in AFG. Vertical Theme has only two major shareholders, with Langkah Bahagia Sdn Bhd (Langkah Bahagia) (a private vehicle) holding a 51% stake. The other 49% is held effectively by Temasek. The removal of shareholding limit may now allow DBS to acquire Langkah Bahagia’s stake.

- Positive for share price. Overall, the news is positive as it affirms the removal of the 20% limit on institutional holdings. We expect further speculation on M&A to be positive on share prices of banking groups. Our sector rating is still OVERWEIGHT, with BUYs now being AFG, CIMB and RHB Cap.

Source: AmeSecurities