DBS Group Holdings Exploring Expansion into Malaysia

By Yantoultra Ngui
SINGAPORE (Reuters) – Singapore's biggest lender, DBS Group Holdings Ltd (OTC:DBSDY), is considering expanding into Malaysia through potential acquisitions of stakes in local banks, including one of the country's smallest banks by assets, according to two knowledgeable sources.

DBS is reportedly looking to purchase Singapore state investor Temasek's 29.1% stake in Alliance Bank Malaysia Bhd, valued at around $460 million. Temasek is the largest shareholder in DBS, holding a 28.9% stake as per LSEG data.

Other avenues for Malaysian expansion include acquiring the Malaysian retail banking assets of Kuwait Finance House, estimated to be worth over $500 million, which are currently for sale. However, the discussions are in very early stages, and formal negotiations would require approval from Bank Negara Malaysia, the Malaysian central bank.

The sources requested anonymity due to the confidential nature of the acquisition talks. A DBS spokesperson declined to comment on market speculation, and Temasek also refrained from making a statement. Alliance Bank, the second smallest listed bank in Malaysia by total assets, and Bank Negara Malaysia did not return requests for comment after business hours on Friday. Kuwait Finance House mentioned that the sale process for its retail banking portfolio in Malaysia is in preliminary stages and could not provide further details.

Currently, DBS is the only Singaporean bank without a retail presence in Malaysia, while local competitors like Oversea-Chinese Banking Corporation and United Overseas Bank (OTC:UOVEY) have established retail banking operations in the country.

DBS' potential venture into Malaysia coincides with improving economic conditions in the Southeast Asian nation, spurred by new infrastructure projects and investments that are anticipated to lead to increased credit growth. In the second quarter, Malaysia's economy grew by an annual rate of 5.9%, marking its fastest growth in 18 months, driven by higher household spending, exports, and investments. This year, the ringgit has emerged as Southeast Asia's strongest currency.

'BOLT-ON ACQUISITIONS'
DBS has transformed into a regional banking giant under the 15-year leadership of outgoing CEO Piyush Gupta, achieving growth through acquisitions that solidified its presence in markets such as China, India, Indonesia, and Taiwan. In August, DBS concluded the acquisition of Citigroup (NYSE:C)'s consumer banking business in Taiwan. In July, Gupta indicated that DBS was pursuing bolt-on acquisitions to support further regional expansion.

Tan Su Shan, currently heading DBS' institutional banking group and serving as deputy CEO, will succeed Gupta in March, becoming the first woman to lead the bank. On Thursday, DBS announced its highest ever quarterly net profit for July-September, driven by record fee income.

In 2012, DBS attempted to acquire Temasek's stake in Alliance Bank, but those plans fell through due to regulatory challenges. The current Malaysian government under Prime Minister Anwar Ibrahim has shown a more open approach to ideas and investments aiming to invigorate economic growth, as per the sources familiar with DBS' Malaysian strategy.