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| Singapore's banks, headquartered in the city's central business district, have acquired a string of overseas assets in recent years. |
Singapore's acquisitive lenders may pause this year to focus on completing their recent M&A deals, though their long-term strategy to pursue growth overseas would stay intact.
Within the first month of the year, DBS Group Holdings Ltd. and United Overseas Bank Ltd., or UOB, announced deals to acquire chunks of Citigroup Inc.'s businesses in Asia-Pacific after the American lender announced its exit from 13 markets. DBS, the biggest local lender by assets, announced a $1.6 billion acquisition of Citi's Taiwan business on Jan. 28. UOB said Jan. 14 it will purchase Citi's consumer banking businesses in four Southeast Asian markets for $3.6 billion. Both banks expect the Citigroup transactions to be "immediately accretive" to their earnings.
"We believe that DBS and UOB are unlikely to undertake further major acquisitions in 2022," said Fiona Leong Wai Yen, head of regional banks, equity research, at Malaysia-headquartered RHB Investment Bank. "Management's focus will be centered on completing the Citibank acquisitions and preparing groundwork for integration."
DBS, UOB and Oversea-Chinese Banking Corp. Ltd., or OCBC, have been active in overseas expansion, often via acquisitions, to tap growing wealth across the Asia-Pacific region. Locally, these banks face limits posed by Singapore's 5.5 million population, of which over 98% have a bank account according to government estimates. Digital-only neobanks are adding to competitive pressures in the already saturated market.
Asia franchise
DBS, the biggest by assets, acquired India's The Lakshmi Vilas Bank Ltd. in 2020, a deal that made it the largest foreign bank in the South Asian nation, and a 13% stake in Shenzhen Rural Commercial Bank in 2021. In 2016, DBS acquired Australia and New Zealand Banking Group Ltd.'s retail and wealth management business in five Asian markets. OCBC acquired Barclays PLC's wealth and investment management businesses and absorbed it into its wealth management unit, Bank of Singapore Ltd., in 2016. In the following year, it acquired National Australia Bank Ltd.'s private wealth business for OCBC Wing Hang Bank Ltd.
"Over the last five years, [the] broad trend has been to do smaller acquisitions which broaden and deepen wealth management capabilities," said Krishna Guha, equity analyst at Jefferies. "It was also driven by prevailing market dynamics wherein fringe players were exiting sub-scale operations due to lack of scale and overall capital optimization at the group level," Guha said, adding, it may take some time for Singapore banks to benefit from scale after they complete some of the acquisitions.
"DBS' priority is to pursue organic growth opportunities which extend our Asia banking franchise," a DBS spokesperson told S&P Global Market Intelligence via e-mail. "In any inorganic initiative we pursue, we always adopt a disciplined approach and will only do the deal if it fits our strategic initiatives, and is accretive to our business franchises within an acceptable period of time."
Spokespersons for both OCBC and UOB referred to comments made during their earnings calls when contacted by Market Intelligence.
UOB, while confident in its strong balance sheet, said that it is not looking into another acquisition at this point. "We have not digested the Citi acquisition. It is too early, too premature to say we are going to make a second acquisition," UOB CEO Wee Ee Cheong said at a Feb. 16 earnings call. "Our key job is to focus on integration to make sure it is successful."
Overseas businesses have become an increasingly important revenue stream for Singapore's three banks, helping alleviate concentration risk from solely relying on their home market. OCBC derived slightly more than half of its earnings from its overseas markets in the first six months of 2021. DBS was most reliant on its home market, which generated two-thirds of its earnings in the first half of 2021.
"Singapore banks are keen to continue to grow in the region, with different banks targeting growth across different countries," said Lim Rui Wen, equity research analyst at DBS Bank. "Singapore banks have also been open to bolt-in deals in specific areas, such as wealth management in the past and we expect that interest to continue."
A key attraction for Singapore to acquire banks in other parts of Asia would be opportunities to grow their fee income, a revenue stream that's grown in importance in the low-interest-rate environment.
"Fee income businesses are less capital intensive," said RHB's Leong. "Acquisition of Citibank's consumer assets would add to Singapore banks' customer base for their wealth solutions, credit cards and loan offerings."
Singapore lenders also have partnerships or small investments in various financial technology firms, a growth route they will likely keep open this year, analysts said. DBS, for example, has a partnership with robo-advisory firm Quantifeed HK Ltd. for its digiPortfolio service, which provides ready-made investment portfolios.
