Bank Negara Malaysia, the central bank reiterated today it would not intervene to speed up a second wave of banking consolidation despite recent failed merger talks.

A sweeping program two years ago that merged 54 banks and finance houses into 10 groups under Bank Negara's supervision was a "major structural achievement" in the fragmented financial system, said governor Zeti Akhtar Aziz.

But further consolidation, which the central bank envisages will leave between six and eight banks, will have to be market-driven, she said.

"Right now, if there are synergies between two financial institutions, we encourage the merger," she was quoted as saying by Bernama news agency.

"But otherwise, we would like them to really consolidate their own position and provide high quality services, products and services and give access to financing at competitive pricing."

Intervention or incentive

Malaysian banks are seeking a new round of mergers to stay competitive ahead of full market liberalisation in 2007.

Rating Agency Malaysia last week said "some form of intervention or incentive" from Bank Negara was required to push through the process after recent merger talks collapsed over pricing and management control.

Earlier this month, Malaysia's fifth largest banking group AMMB Holdings called off merger talks with number two lender Commerce Asset-Holding Bhd.

It was the second failed attempt by AMMB to find a suitor after talks with EON Capital to create the country's third largest banking group crumbled. Analysts cited disagreement over pricing as the main obstacle.

Prime Minister Dr Mahathir Mohamad has said local banks will learn that mergers are crucial for survival because foreign banks in Malaysia are already doing more business despite operational limitations. - AFP