Eager to build a national banking champion to cement
Singapores status as a rising financial power, the
city-states authorities endorsed a bold expansion
strategy at Development Bank of Singapore in the late 1990s.
The lender went on an acquisition spree between 1997 and 2001,
spending more than 12 billion Singapore dollars
($9.3 billion) to acquire local banks in Hong Kong,
Indonesia, the Philippines and Thailand. The pieces never added
up to a greater whole, though. Profits rose, but costs
escalated at an even faster pace, and margins shrank. When the
global financial crisis struck in 2008, the renamed DBS Group
Holdings saw its stock price plunge by nearly two thirds and
was forced to raise expensive capital with a big rights
Today, Singapores flagship bank has recovered with its
ambition intact. This time, however, DBS is pursuing its
regional goals on a sounder basis under CEO Piyush Gupta. A
veteran of Citigroups Asian operations, Gupta has
injected new life into DBSs platform since taking over as
chief executive two years ago. He has bolstered the
groups management ranks with senior executives recruited
from the likes of Standard Chartered and Morgan Stanley. He is
knitting the banks far-flung operations more than
250 branches in 12 Asian markets into a coherent whole
by offering a common platform of global transaction services,
trade finance and wealth management to small and medium-size
enterprises and their owners across the region. And Gupta is
rapidly expanding the banks modest branch network in
China and India, seeing those two massive markets as the motor
of Asian prosperity.
His aim is bold yet simple: Make DBS a powerful pan-Asian
bank with the spread and sophistication to outcompete local
lenders while avoiding direct competition with global giants
such as Citi, HSBC Holdings and Standard Chartered.
Its quite clear theres an opportunity to
carve a playing field on which we can win as an Asian bank
distinct from a domestic bank or a Western global bank with a
strong Asian footprint, Gupta tells Institutional
Investor in an interview on the 46th floor of DBSs
headquarters overlooking Singapores bustling port.
Asia in the next ten or 20 years is going to be a lot
different than the Asia of the last 20. We are moving to a
consuming Asia from a producing Asia. That means greater
connectivity among the regions different manufacturing
and consumer markets, with Asian companies creating more of
their goods and services for local buyers rather than Western
Those efforts are starting to pay off. DBS recently reported
its best-ever nine-month results, with net profits before
goodwill charges rising 17 percent in the first three quarters
of 2011, to S$2.3 billion, and revenue increasing 7
percent, to S$5.7 billion. The banks return on
equity rose to 11.3 percent in the latest period from 10.2
percent a year earlier.
DBSs CEO expects his bank to generate double-digit
growth in both revenue and profits over the next three to five
Gupta is doing a great job, says Harsh Wardhan
Modi, a banking analyst at JPMorgan Chase & Co. in
Singapore. The change hes brought in is giving this
organization a structure and clear direction of where they have
to go. Modi isnt the only industry forecaster
taking note of the banks improved outlook. Of 27 analysts
covering the company, 19 hold a buy or outperform
recommendation on DBS stock and only one has a sell
recommendation, according to information compiled by Reuters.
DBS is even winning back investors who abandoned the stock a
decade ago, including Hugh Young, the Singapore-based head of
Aberdeen Asset Managements Asian business, which manages
more than $90 billion in assets. He seems to have
his feet on the ground, says Young. He seems
Gupta is underpinning his strategy by beefing up DBSs
corporate transaction, treasury and wealth management
businesses. Such services used to be overshadowed by corporate
lending, but they offer extra appeal today because they demand
less capital, generate steady fee income and deepen the
banks relationship with Asian companies and their
The CEO recruited Tan Su Shan, Morgan Stanleys former
private banking chief for Southeast Asia, to oversee wealth
management and Tom McCabe, who helped build Standard
Chartereds global transaction services business, to do
the same at DBS. Cross-sell is their mantra. Small
and midsize companies often require collaboration among
assorted teams of product specialists. Our marching
orders are to make sure we dont do just lending but
extend our business to transaction banking, treasury and
capital markets, says Jeanette Wong, head of the
institutional banking group. The efforts seem to be working.
Net fee and commission income rose 15 percent in the first nine
months of 2011, to S$1.2 billion.
In tandem with developing DBSs product offerings,
Gupta has ramped up the banks expansion across the
region, especially in the vast Chinese and Indian markets. DBS
said it would open nine new outlets in China in 2011, making it
the sixth-largest foreign bank there behind HSBC, Standard
Chartered, Citi, Bank of East Asia and Hang Seng Bank. In India
the bank has grown its revenues at a compound annual rate of
about 50 percent over the past five years.
DBS is far from alone in seeking to expand in Asia.
Multinational banks, including Citi, Deutsche Bank, HSBC and
JPMorgan Chase, are bolstering their Asian operations in search
of growth. Local rivals have ambitions of their own.
Malaysias CIMB Group Holdings is expanding in Indonesia
and Thailand. DBSs Singapore rivals, Oversea-Chinese
Banking Corp. and United Overseas Bank, are seeking to expand
in China; each bank grew its Greater China loan book by more
than 65 percent in the first nine months of 2011. It all adds
up to a daunting competitive landscape.
Guptas expansion bid doesnt come cheaply,
moreover. Expenses rose 13 percent in the first three quarters
of 2011, to S$2.42 billion, and the banks
cost-to-income ratio rose to 42 percent from 40 percent a year
The CEOs growth strategy also entails greater risk.
DBS is ramping up its exposure to key Asian markets at a time
when some analysts see increased risks to growth stemming from
the sluggishness of Western markets and Europes deepening
debt crisis. In the 12 months ended in September, the bank
increased its total lending by 25 percent, to
S$188.5 billion, with credit to China, India and Southeast
Asian markets climbing by 67 percent.
This has been a great opportunity to push our
strategic agenda faster than we would normally do, Gupta
told investors and the media in September. European banks
are pulling out, China has loan quotas in place, and people
So far, DBS has kept nonperforming loans in check. NPLs on
the banks Chinese loan book stood at just 0.5 percent at
the end of September; the banks overall NPL rate dropped
to 1.3 percent from 1.5 percent in June. Gupta insists that DBS
is going about its expansion prudently, but gathering clouds on
the economic horizon argue for caution, some analysts say.
A macro slowdown certainly will test risk management at
DBS, says JPMorgans Modi. Theyve been
much more disciplined in this cycle, but youve got to go
through a cycle to know what can go wrong.
DBS remains very well capitalized by international
standards, boasting a core tier-1 capital ratio of 10.7
percent. In April, Fitch Ratings reaffirmed DBSs
long-term rating of AA, citing the banks strong
balance sheet and capital base. DBS also has an Aa1 rating from
Moodys Investors Service and an AA counterparty
credit rating from Standard & Poors.
The banks strength has helped it attract more wealth
management clients since the onset of the global financial
crisis, executives say. A lot of money came out of
European and U.S. banks and walked into the door of DBS after
Lehman collapsed, says wealth management chief Tan.
The pull of a safe bank is strong.
DBS has been synonymous with Singapore since it was
established by the government in 1965 with the mission of
financing the development of the city-states
manufacturing economy. It did so with panache, helping to turn
Singapore into a modern, export-oriented powerhouse in the
space of a generation.
In the late 1990s thenprime minister Lee Kuan Yew
tapped DBS to spearhead a new drive to make Singapore a global
financial center by becoming a universal bank with regional
ambitions. DBS made its first significant offshore foray when
it bought 70 percent of Bangkok-based Thai Danu Bank in 1997.
The experience was costly. Losses skyrocketed as fully 53
percent of the Thai banks loans became nonperforming,
forcing DBS to double its loan-loss provisions, to
S$996 million, in 1998 and sell its stakes in DBS Land and
Singapore Petroleum Co. to raise capital.