(AFP) The country may see a new round of banking consolidation if RHB Bank, the third largest, is forced to seek a new partner following stalled merger talks with Utama Bank, analysts said today.

Prime Minister Dr Mahathir Mohamad on Tuesday said RHB-Utama merger talks had broken down and issued an ultimatum to Bank Utama to find a merger partner by June or risk losing its licence.

RHB executive chairman Abdul Rashid Hussain has said talks were ongoing with Utama but cited pricing as a major obstacle.

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.

While RHB Bank could remain on its own in the interim, many analysts believe it could eventually merge with Bumiputra-Commerce Bank, the second largest, to rival top bank Malayan Banking (Maybank) which is way ahead in terms of size and assets.

"I think there is a good chance they will fix up with Commerce," TA Research head of research Chie Kieng Ngu told AFX-Asia , the AFP -owned financial news wire.

"We believe the second round of banking mergers will kick off some time this year. Some of the (recent) events suggest that that possibility is quite real. An RHB-Commerce merger will alter the landscape of the banking sector quite dramatically."

"Scurrying to merge"

Analysts said a new major merger could send other smaller banking groups scurrying to merge in order to size up to their bigger cousins.

"The rest are almost of equal sizes except for Maybank and with a RHB-Commerce merger, you will have two very big and competitive banks and the rest will have to play catch-up," said TA's Chie.

Most analysts agreed that a second round of consolidation was in the offing but were divided over how soon the industry would see more mergers.

Mahathir, who is finance minister, has said 10 anchor banks were enough for Malaysia but expected them to keep on merging.

An analyst with a local brokerage said the final number of banks in the industry could be five or six, with an RHB Bank-Bumiputra-Commerce Bank merger likely to be be a prelude to another round of consolidation.

But such a tie-up "wouldn't be ideal at this point in time" given the current weakness in the economy and the resultant lay-offs arising from bank mergers, he added.

Premature talks

A research manager at OSK Research said it was premature to talk about a second round of mergers.

"From the economic point of view ... if you really want to merge the second and third largest banks, it could lead to retrenchments and worsen unemployment," the research manager said.

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.