New owner of Malaysia's RHB bank eyes CIMB - source

(Recasts, adds more quotes, background)

By Mark Bendeich

KUALA LUMPUR, April 4 (Reuters) - The new owner of Malaysia's fourth-largest lender, RHB Bank, sees larger rival CIMB Bank as a likely merger partner for RHB, which together could become a regional heavyweight, a source close to the situation said.

RHB banking group RHBS.KL (RHBC.KL) is being taken over by Malaysia's state pension fund after it won a $3.68 billion bid battle last month. The fund aims to sell down its stake and bring in strategic investors to help run and grow the business.

"CIMB and RHB would be a very good fit and a very good consolidation," the source told Reuters, noting that RHB was strong in retail banking, with about 200 branches nationwide, while CIMB was strong in investment and wholesale banking.

"They have a very strong investment bank which RHB can supplement."

He added that, together, CIMB and RHB would rival top lender Malayan Banking Bhd (MBBM.KL) for size, large enough to expand into Southeast Asia and compete with regional banks.

The Employees Provident Fund, with assets of around $80 billion, declined to comment. CIMB also declined to comment.

CIMB, Malaysia's second-largest lender and a unit of Bumiputra-Commerce Holdings Bhd (BUCM.KL), and RHB would have combined assets of around $70 billion, edging out Maybank as the country's biggest lender, according to Reuters data and stock exchange filings.

Such a merger would be a second-stage step, the source said.

The fund's first priority was to restructure debt-laden RHB, cut costs and sell a minority stake to strategic partners, the source said, adding that it could sell the first 5-10 percent tranche by year-end, followed by a 20-25 percent stake.

The fund hopes to reduce its holding to 35 percent by the middle of 2008. At least 25 percent would also be re-floated on the Malaysian stock exchange this year.

MOVING QUICKLY

They "have to do this quickly, reduce this quickly", the source said, adding that the fund's controversial move to take full ownership of such a large bank was based on valuation and a belief in the future of the Malaysian banking industry.

"This is a one-off deal. This is something that will come in rarely," the source said.