(AFP) - Prime Minister Dr Mahathir Mohamad today issued an ultimatum to Bank Utama (Malaysia) Bhd to find a merger partner by June or have its banking licence revoked.

Mahathir, who is also finance minister, said Bank Utama, a unit of the Utama Banking Group, had been given a six month extension until the end of June to find a partner after talks with Rashid Hussain Bhd. (RHB) collapsed.

"I understand the talks have broken (down). I don't think they are going to merge and because of that, Bank Utama will have to find some other partner," Mahathir said.

"We have given them six months. And unfortunately if they don't, we will have to cancel their licence."

Asked why Bank Utama has been given special consideration, he said: "They have special problems."

Under a sweeping consolidation program, Malaysia's 54 banks merged into 10 anchor groups by Dec 31 last year except for Bank Utama which has been negotiating to merge with RHB Bank.

Pricing obstacle

RHB executive chairman Abdul Rashid Hussain told reporters today that talks to sell a 23.9 percent stake in RHB Bank to Utama Banking Group (UBG) were ongoing but pricing was a major obstacle.

"Officially, we are still in negotiations with UBG... I am waiting for a formal agreement to our terms and scheme proposed to UBG," he said on the sidelines of an investment seminar.

He said he would not change the terms and conditions of the sale which he described as "fair", adding that Utama should make up its mind to speed up the merger.

"The price I put up may not reflect the market price... but I don't depart from the professional basis of valuation. The deal I ask for is fair and professional," he added.

Mahathir has said that Bank Utama would have to find an anchor bank to merge with as it was "not qualified" to become an anchor bank on its own.

Strict requirement

An anchor bank must have minimum shareholders' funds of RM2 billion, a requirement that Bank Utama could not meet.

The premier has also reiterated that 10 anchor banks were enough for Malaysia but expected them to keep merging.

Mahathir last year hinted that Malaysia, which has resisted pressure to allow new players into its banking sector, may liberalise the sector by 2007 and warned bankers to upgrade their skills to remain competitive.