A DBS Bank building in Singapore. Source: DBS Bank

DBS Group Holdings Ltd.'s US$1.6 billion acquisition of Citigroup Inc.'s consumer banking business in Taiwan would allow the Singapore lender to grab a bigger slice of another key Asian market, fueling its ambitions to become a regional player.

Citi Consumer Taiwan currently has 2.7 million credit cards and unsecured accounts, 500,000 deposit and wealth customers, and 45 branches. As of Sept. 30, 2021, it had an earning asset base of S$20.3 billion and total deposits of S$15.1 billion, of which more than 70% are sticky low-cost deposits.

"It accelerates our overall Taiwan strategy very meaningfully. It catapults us to be not only the largest foreign bank but now one of the leading banks [in Taiwan]," CEO Piyush Gupta said on a call with journalists after announcing the deal Jan. 28.

"Notwithstanding COVID-19, we believe that Asia's long-term growth trends remain intact," Gupta said, adding, "The acquisitions we have made since the start of the pandemic have given us a platform to build meaningful scale in some of our core markets. This acquisition is no exception."

DBS acquired a 13% stake in Shenzhen Rural Commercial Bank in 2021, becoming the single-largest shareholder of the Chinese lender. It also bought India's The Lakshmi Vilas Bank Ltd. in 2020 in a deal that made it the biggest foreign bank in the South Asian nation.

Singapore's three biggest lenders — DBS, Oversea-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd., or UOB, — have sought to expand their businesses across different geographies in Asia-Pacific, seeking to grow their customers and tap growing wealth across the region. Locally, these banks face limits posed by Singapore's 5.5 million population and emerging competition from digital-only neobanks.

UOB on Jan. 14 said it will acquired Citi's consumer banking businesses in four Southeast Asian markets for nearly US$3.6 billion. That deal would double UOB's retail consumers to about 5.3 million in Malaysia, Indonesia, Thailand and Vietnam.

Focus on wealth

For Citi, the Taiwan deal is another step in CEO Jane Fraser's plan to exit retail operations in 13 markets to focus on wealth management and corporate banking operations. The lender in December 2021 announced a deal to sell its consumer-banking business in the Philippines to a local lender, and earlier signed a similar deal in Australia. In South Korea, Citi decided to shut down its retail franchise permanently after repeated failures to find a buyer. The bank also announced its exit from consumer banking in Mexico on Jan. 11, after which Fraser said Citi's strategic review of geographies is now complete.

DBS, Southeast Asia's biggest bank by assets, will pay to Citi a premium of NT$19.8 billion and invest NT$24.5 billion in capital to support the incremental risk-weighted assets and capital needs of the Taiwan business, according to a press release. DBS expects to gain from Citi's wealth management and credit card businesses in Taiwan.

The Singapore lender expects Citi's Taiwan business to contribute at least S$250 million annually in income, adding to its own local franchise that too has been growing, Gupta said. The Citi deal will immediately be earnings and return on equity accretive post-completion.

DBS intends to retain Citi's 3,500 employees in Taiwan with no retrenchment over the next three years. It estimates completion between mid-2023 and plans to finance the transaction via excess capital with no impact on its ability to pay dividends. The transaction will reduce the lender's capital ratio by an estimated 70 basis points.

As of Jan. 27, US$1 was equivalent to S$1.35 and NT$27.81.