The country's second biggest lender Commerce Asset-Holding Bhd and fifth largest AMMB Holdings will sign a pact this week to merge their banking and finance operations, industry sources said today.

Under a memorandum of understanding, AMMB will sell its retail banking operations to Commerce for RM4 billion in cash, a source close to the deal told financial news wire AFX-Asia.

"The two parties are thrashing out the details and if all goes well, AMMB and Commerce will sign the MOU before the week is out," the source said.

Due diligence on AMMB's retail banking operations will be carried out immediately after the pact is signed, he said, adding the transaction would be an "all-cash deal."

AMMB will retain its investment bank and brokerage operations, he said.

Collapsed deal

Commerce obtained central bank's nod last month to commence merger talks with AMMB to close the gap with top bank Malayan Banking.

The move came after merger talks between AMMB and EON Capital to create the country's third largest banking group collapsed amid disagreement over pricing.

A research head with a local brokerage said the deal was positive for Commerce as it would transform the group into a "formidable rival" to Malayan Banking.

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

The central bank, which oversaw a sweeping program two years ago which merged 54 banks and finance houses into 10 "anchor" groups, envisages further consolidation to leave between six and eight banks.

But the government has insisted the new round of mergers would be market-driven. - AFP