Kuala Lumpur: It is not often that you see octogenarians coming out of retirement to run car companies, but they do things differently in Malaysia.

A few months ago Mahathir Mohammad, the former Malaysian prime minister, suddenly announced he was taking up the chairmanship of Proton, the domestic carmaker he was instrumental in launching back when he ran the country in the 1980s.

It turns out that this is quite a hands-on role. The 89-year old — still spry and mentally sharp, by all accounts — has appeared at events to promote Proton, telling of how he wants to transform it from a maker mostly of budget cars into a world-class manufacturer.

From a corporate governance perspective, having an ageing former politician take a company’s future in his hands may seem questionable. But Proton is a private company and can do as it pleases. The company may, in fact, benefit from fresh direction under Mahathir, who achieved much as Malaysia’s no-nonsense leader for 22 years until he stepped down in 2003.

However, when it comes to the planned three-way merger between publicly listed banks announced in Malaysia last week - where personalities with strong government links are also playing a key role at the top - there are questions to be asked over the health of corporate governance in southeast Asia’s third-largest economy.

The deal envisages a combination of CIMB, the country’s second-biggest bank, with RHB Capital, a smaller bank, and Malaysia Building Society. With combined assets of Rm613 billion ($188 billion), it would overtake Maybank as the largest banking group in the country.

The announcement took most investors by surprise. An attempt to combine CIMB and RHB two years ago foundered because there was too much overlap between their businesses.

So why try again? The idea makes some sense when the 10-member bloc known as the Association of Southeast Asian Nations (Asean) is moving — if slowly — towards greater integration of its financial markets.

Regional corporate champions are emerging, such as Axiata, a Malaysian telecoms group that has expanded into Cambodia, and Wilmar, a Singapore-listed agri-business that in April formed a sugar joint venture in Myanmar. They will need banks capable of offering commercial banking on a regional basis.

The proposed Malaysian group would be the fourth-largest lender in the Asean region. There is also some logic to the creation of a mega Islamic bank in Malaysia - already Asia’s largest market for sharia-compliant investments and sukuk bonds.

Yet beyond a thin statement of intent, the three banks have not spelt out how this deal is to be structured.

It is also unclear whose idea it was. A big role will have been played by Nazir Razak, a younger brother of Malaysia’s prime minister Najib Razak. The younger man — equally unexpectedly — announced his resignation as CIMB chief executive and elevation as chairman only a week before the three-way bank merger was made public.

The role of Khazanah, Malaysia’s sovereign wealth fund that owns 25 per cent of CIMB — and which the prime minister chairs — is crucial too. Nazir is also joining Khazanah’s board.

Who knew what, and when, matters very much in the Malaysian bank merger given the extensive minority interests in CIMB. They include Aberdeen Asset Management, Bank of Tokyo-Mitsubishi, JPMorgan and T Rowe Price.

Another key player is the Employees Provident Fund, Malaysia’s biggest state-run pension fund, probably best known outside Malaysia as a part-owner of the Battersea Power Station. It is also the largest shareholder in all three Malaysian banks.

Minorities will be watching to see whether the EPF gets to vote - and how it will vote - on any eventual transaction, widely expected to be a share swap. For them, the central issue is whether the fund is a passive shareholder or was in on the deal from the start - as seems possible given the instincts of Malaysia’s clubby business elite.

To its credit the EPF was a driving force only a few weeks ago behind the adoption by Malaysia of a UK-style institutional shareholder code. This clearly defines disclosure responsibilities for asset owners and, on paper, puts Malaysia ahead of the pack in corporate governance in Asia.

Malaysia now has an opportunity with its bank merger to demonstrate disclosure and governance that is world class. Anything less would be hypocrisy.

— Financial Times