Talk of a potential merger between mid-sized lenders AMMB Holdings Bhd and RHB Bank Bhd seems to have resurfaced in the banking industry, with a source telling The Edge that an adviser — a big accounting firm — has been working on certain aspects of the prospective union.

“The firm was brought on board to help study this. It’s been kept very hush-hush given the sensitivity [of the matter]. It’s a very small group that is aware of this,” the source says.

A merger of the two would create the country’s fourth largest banking group by assets, behind Malayan Banking Bhd, CIMB Group Holdings Bhd and Public Bank Bhd — based on their asset size as at end-2016.

The combined RHB-AMMB entity’s assets, at RM365.88 billion, would be only slightly behind that of Public Bank’s RM380.05 billion.

According to the source, there have been preliminary discussions on the matter among some of the key shareholders of both banks over the last few months.

“Some of the parties have been meeting outside the country to have discussions. But it’s all still at an early stage ... it has not come to a point where the banks are asking the regulator [Bank Negara Malaysia] for permission to have official talks with each other yet,” the source says.

Whether all this activity will eventually lead to official talks being held, remains to be seen. To be sure, this is not the first time such discussions for an RHB-AMMB merger have been held.

The last time was in mid-2015. The Edge had in August that year reported that discussions among some of the key shareholders of RHB (then known as RHB Capital Bhd) and AMMB about a potential merger had to be put on hold following political headwinds at the time.

The idea then had been to merge the two groups in a share swap valued at about US$10 billion, under which RHB was the acquirer, The Edge report said, citing sources familiar with the matter. CIMB Investment Bank Bhd had been advising on the merger. However, the plan was shelved shortly after AMMB got embroiled in a controversy surrounding 1Malaysia Development Bhd.

AMMB and RHB have a common shareholder in the Employees Provident Fund (EPF).

The pension fund is the largest shareholder in RHB with a 40.7% stake, and a 11.68% stake in AMMB.

“We are not aware of any such [merger] activity. As a shareholder, we will always wait for an official announcement before considering the merits of any corporate proposal,” an EPF spokesperson tells The Edge.

While it remains to be seen if the talks will take off, what is certain is that any merger between RHB — currently the fourth largest lender — and AMMB, the sixth, will be difficult.

For one, pricing will be a major issue, especially for the two foreign shareholders — Australia and New Zealand Banking Group Ltd (ANZ) and Aabar Investments PJS — that hold major stakes in AMMB and RHB, respectively. Aabar, which has a 17.69% stake in RHB, proved to be a stumbling block to a proposed mega merger of CIMB Group, RHB and Malaysia Building Society Bhd two years ago because it had what was deemd unreasonably high exit price expectations.

For another, analysts say while AMMB and RHB could make a good fit, there would be duplications in some of their businesses, which would make layoffs inevitable.

Banks that embark on mergers these days look to derive cost synergies more than anything else, they point out.

“Any merger of this scale which involves layoffs, given it’s all about cost synergies, will not happen this year for sure. This is seen to be an election year ... no one would dare do this deal and reduce headcount because of a merger at such a sensitive time,” observes a banker.

That AMMB is an M&A candidate is no surprise — ANZ has been keen to sell its stake for some time now as part of a larger plan to exit from minority banking stakes in the region, while the second largest shareholder, founder and chairman Tan Sri Azman Hashim, who holds 12.97%, may be more open to selling as he is retiring from almost all his positions within the banking group over the next two years.

Apart from EPF, Azman — who is 78 this year and holds his stake through AmCorp Group Bhd — will be a point man in any deal. He has a big say in who takes up the ANZ stake as he has the first right of refusal on it.

ANZ CEO Shayne Elliott told reporters last November that it would be looking to sell its minority stakes in AMMB and three other Asian banks over the next 12 to 18 months. Private equity firms and some Chinese banks had shown interest in the stake previously, but nothing came out of it.

Over at RHB, the OSK Group’s Tan Sri Ong Leong Huat — the third largest shareholder (7.77%) after the EPF and Aabar — may be keen on a merger as he is understood to want to exit banking to focus on his property businesses, sources say.