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 Around 90 per cent of its earnings are derived from Malaysia, with Indonesia's Bank Niaga the second-largest contributor at about 8 per cent. Now it would like to expand into Thailand through the acquisition of BankThai.

The Thai authorities have welcomed the Malaysian bank with open arms. BCHB will buy a 42-per-cent stake in BankThai from the Financial Institutions Development Fund (FIDF), which is looking forward to divesting its shares. This stake is worth Bt5.9 billion or Bt2.10 a share. The takeover will require BCHB to launch a general offer for minority shareholders.

"There is sufficient capital within the group to finance the purchase without a cash call, by our estimates," Citigroup said in a recent report. "The acquisition price translates to an adjusted price/book value of about 2.3 times."

BCHB aims to raise its BankThai stake to 100 per cent. The problem now is Thailand's banking law on foreign ownership. Foreign ownership is now limited to 49 per cent. To breach this level, the Finance Ministry must provide a waiver on a case-by-case basis. So far it is not clear whether Finance Minister Surapong Suebwonglee will go along with the BCHB's application by waiving the ownership limit.

Surapong has signed an order to probe the FIDF's investment in BankThai's capital increase. The case is highly political involving the question of Bank of Thailand Governor Tarisa Watanagase. Even Abhisit Vejjajiva, the opposition leader, recently observed in Parliament that the Finance Ministry did not seem to get along well with the central bank. Abhisit said he had overheard that there were attempts to remove Tarisa and replace her with a candidate who has been reluctant to pursue a stock-market probe into ousted prime minister Thaksin Shinawatra.

However, the management of BCHB believes that eventually it will be allowed to fully own BankThai, as it is a distressed sale.

Currently, BCHB's Thai exposure is small via CIMB-GK Securities, a brokerage firm. With the takeover of BankThai, the investment bank would be able to leverage BankThai's larger balance sheet of Bt220 billion. Consumer and commercial banking operations will likely be built up over the medium to longer term.