In a joint statement to the media, banks CIMB Group and RHB Capital Berhad together and property lender Malaysia Building Society Berhad (MBSB), said discussions had ended after they failed to make the merger attractive for all parties.

"Whilst we remain convinced that the combination of our three franchises follows sound strategic logic, we ultimately were not able to arrive at a value creating transaction for all stakeholders," said Zafrul Tengku Abdul Aziz, Acting Group Chief Executive, CIMB Group. 

"Protecting and creating stakeholder value is paramount to all parties and given the changes in environment we could not conclude a case to proceed further," said Kellee Kam, group managing Director at RHB Capital.

Concerns about the economic outlook are mounting in Malaysia, with falling oil prices expected to slash the petroleum-exporting country's trade revenue and the ringgit currency at five-year lows.

Ratings agency Fitch had warned last year when news of the impending deal first emerged that it was fraught with risk, particularly difficulties achieving integration.

The three institutions had proclaimed in October that they would create a "financial powerhouse" and a "mega-Islamic bank".

It was to be the country's largest bank, surpassing current leader Maybank, and Southeast Asia's fourth-biggest, they said.

Islamic banking fuses principles of Islamic sharia law and modern banking methods. Islamic funds are banned from investing in companies associated with tobacco, alcohol or gambling. Interest on accounts is also banned as usury.

Malaysian authorities have sought to position the country as a leading center for Islamic finance and also have encouraged consolidation in Malaysia's banking sector to heighten its regional profile and competitiveness. (+++++)

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