* CIMB aims to acquire RHB and Malaysia Building Society
* The new bank would be Malaysia's largest by assets
* Maybank, others expected to feel pressure to acquire too (Adds CIMB, RHB confirming in merger talks)
By Yantoultra Ngui and Al-Zaquan Amer Hamzah
KUALA LUMPUR, July 10 (Reuters) - Malaysia's CIMB Group Holdings Bhd is seeking to acquire two lenders to create the country's biggest bank in a move that is likely to push larger rival Maybank and others in the region to bulk up too.
CIMB, the nation's second-largest bank, is likely to offer an all-stock deal to buy RHB Capital Bhd and Malaysia Building Society Bhd although details have yet to be hammered out, a source familiar with the matter said.
The three banks confirmed on Thursday they had obtained approval from Bank Negara Malaysia, the country's central bank, to begin merger talks.
The "three parties have entered into a 90-day exclusivity agreement to negotiate and finalise pricing, structure, and other relevant terms and conditions for a proposed merger of the three entities and the creation of a mega Islamic bank," the three banks said in a statement.
The statement came after shares in all three banks were suspended on Thursday pending an announcement. Shares will resume trade on Friday.
The proposal comes ahead of a planned partial integration of Southeast Asian economies that is due to begin by the end of next year, with countries in the 10-nation alliance keen to build national champions to bolster their banking systems.
CIMB has been the most acquisitive of Malaysia's banks and a deal would be the last major move by CEO Nazir Razak, brother to the prime minister, before he relinquishes the helm in September after 15 years.
A successful deal would see CIMB's assets climb to 614 billion ringgit ($195 billion), 6 percent bigger than Malayan Banking Bhd (Maybank), and could help with pricing power in an intensely competitive domestic market.
"We believe that we can structure a value creating combination between our three groups and that is worth taking the next steps," Nazir told employees according to an internal memo obtained by Reuters.
"I would urge everyone to look forward to the possibility of a significant scale change for us overall, but specially in Malaysia and Singapore, with the caveat that we have only just begun negotiations."
But some analysts warned CIMB may pay too much and that there could be too much overlap between CIMB and RHB - the nation's No. 4 bank, as they have similar portfolio mixes and strengths.
RHB and Malaysia Building Society have a combined market capitalisation of around $9 billion, almost half of CIMB's $19 billion market value.
"We opine that such a merger could be value destructive to the merged entity given the degree of operational and revenue duplications between CIMB and RHB Capital," brokerage UOB KayHian said in a client note.
Representatives for CIMB did not respond to requests for comment while RHB said there was no further update at this stage. Representatives for Malaysia Building Society were not immediately available for comment.
A deal would make CIMB the fourth-largest bank in the Association of Southeast Asian Nations (ASEAN) after Singapore's three biggest lenders. By comparison, the largest, DBS Group Holdings, has assets of $337 billion.
Nazir is the architect of the bank's expansion over the past decade that saw it buy domestic rival Southern Bank, the Asia equities and investment banking business of RBS as well as lenders in Indonesia and Thailand.
A new deal is bound to heap pressure on Maybank to acquire a rival too, analysts said, with some speculating that Public Bank Bhd could fall within its sights.
"Maybank might want to take over Public Bank, which compared to RHB Capital, is much better in terms of asset quality, and is well-managed and well-capitalised. This makes Public Bank a vulnerable target," said Ei Leen Tan, an analyst with Affin Investment.
A key player in any acquisition by CIMB of its two smaller rivals will be the Malaysian state pension fund, the Employees Provident Fund (EPF). It owns 41.3 percent of RHB and 65 percent of Malaysia Building Society. The fund also owns a 14.5 percent stake in CIMB, according to Thomson Reuters data.
Another will be Abu Dhabi-based Aabar Investment which bought a 25 percent stake in RHB for 10.80 ringgit per share in 2011 - regarded as a particularly high valuation. Both CIMB and Maybank walked away from a deal to buy RHB in 2011 after failing to secure support from Aabar. The state fund currently owns nearly 22 percent of RHB.
The EPF said in an email it would not be able to comment on the matter as it is very preliminary in nature and specific details are still pending. A spokesman for Aabar said it doesn't comment on any of its investments.
While plans for ASEAN integration are widely expected to suffer delays, bankers and analysts expect more deals done as the banks from Singapore, Malaysia and Indonesia prepare for a more competitive landscape.
"This will give impetus to other countries in the region to think of something similar," said a M&A banker who advises on bank deals.
$1 = 3.1705 Malaysian Ringgits Additional reporting by Saeed Azhar in Singapore, Trinna Leong in Kuala Lumpur and David French in Dubai; Writing by Denny Thomas; Editing by Edwina Gibbs and Mark Potter