Banking group AMMB Holdings announced today that merger talks with its second suitor, the country's number two biggest lender Commerce Asset-Holding Bhd., has been called off.

Both parties have "mutually agreed to discontinue discussions with immediate effect" on a possible merger between their banking and finance arms, AMMB said in a statement.

As the country's fifth largest banking group, it said it would seek to aggressively build its dominant position in retail banking to complement the group's lead in investment banking operation.

No reasons were given for the failure of the AMMB-Commerce talks but industry sources familiar with the deal told financial news wire AFX-Asia that pricing was again the key barrier.

"The deal is off as the parties could not agree on pricing. The valuations are too close to market," a source said.

Staying competitive

Disagreement over pricing has earlier led to the collapse of merger talks between AMMB and EON Capital to create the country's third largest banking group.

Following this, Commerce in July obtained central bank's nod to begin merger talks with AMMB to close the gap with top bank 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