The AmBank Group and EON Bank are holding merger talks that could create Malaysia's third largest banking group and may trigger a fresh round of consolidation in the industry.

EON Capital, in a statement today, said it has received approval from the central bank to commence negotiations with AMMB Holdings for a possible merger of their banking arms.

However, this is preliminary and the parties would need final approval from the Finance Ministry to enter into an agreement for the merger, it said.

Trading in shares of AMMB Holdings and EON Capital, as well as their parent companies Arab-Malaysian Corp (Amcorp) and Edaran Otomobil Nasional (EON), and AMFB Holding were suspended today o­n the Kuala Lumpur Stock Exchange.

AMMB was last traded at RM3.24, EON Capital at RM2.90, AMFB at RM4.06, Amcorp at RM0.84 and EON, which is the national cars distributor, at RM8.90. Trading will resume tomorrow.

The AmBank Group is currently the fifth largest while EON, a leader in motor-vehicle financing, ranks seventh among Malaysia's 10 banking groups.

Pressure to merge

Analysts said that if the merger goes through, it would create the country's third largest banking group with combined assets of more than RM85 billion.

The merger may also spark a new round of consolidation, two years after a sweeping programme that merged 54 banks and finance houses into 10 groups to strengthen the sector against international competition, they said.

"It will put some pressure o­n the other banks to get the ball rolling, especially the smaller o­nes," said Karin Phua, banking analyst with OSK Research.

Bank Negara, the central bank which oversaw the restructuring of the industry into 10 "anchor" groups, has envisaged a further consolidation to leave between six and eight banks but it has stressed the process will be market driven. - AFP