Singapore on path to bigger banks

Consolidation is on the way in Singapore's banking sector

By CNN's Geoff Hiscock, Asia business editor

SINGAPORE (CNN) -- Singapore's banking sector is moving closer to the government goal of two strong local banks to compete with foreign entrants.

By the time the latest round of merger activity is settled later this month, Singapore will have slimmed down from five to three big banks, headed by DBS Bank, which is 37 percent government-owned.

In second spot is likely to be a combination of United Overseas Bank and Overseas Union Bank.

This assumes UOB's friendly $5.7 billion takeover offer for OUB beats a less valuable bid of $5.2 billion from DBS.

In third spot will be Oversea-Chinese Banking Corporation (OCBC), which said at the weekend it had acceptances for 91 percent of shares in Keppel Capital, owner of fifth-ranked Keppel TatLee Bank.

Flurry of merger activity

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OCBC launched its $2.6 billion bid for Keppel TatLee in June. That was followed by the DBS bid for OUB, and then the counter-offer by UOB.

Singapore's Monetary Authority said in May 1999 that as the island state progressively liberalized its banking and financial services sector, it saw only enough room for two strong local banks to compete against international players such as Citibank, Standard Chartered and HSBC.

Since then, Singapore's banks have been bulking up to meet the expected wave of foreign competition.

DBS started the most recent round earlier this year when it acquired Hong Kong's fourth-largest bank, Dao Heng, for about $5.5 billion.

Ranked by assets, DBS is the clear leader in Singapore, with about $85 billion in assets after the Dao Heng acquisition. A combined UOB-OUB would rank next with about $62 billion, followed by OCBC-Keppel TatLee with about $47 billion.

Vote in favor of bid

DBS shareholders on Monday voted overwhelmingly in favor of the bank's $5.2 billion bid for OUB. But it seems unlikely that the DBS will win acceptance from OUB shareholders, given the higher offer from UOB.

DBS at the weekend repeated that it would not increase the terms of its bid, saying it would take a "disciplined and thoughtful approach to domestic consolidation".

DBS shares were 2.2 percent higher Monday, trading up 30 cents to Sing.$13.40.

UOB, which on Friday reported an 11 percent lift in net profit to about $252 million for the six months to June 2001, was up 0.9 percent or 10 cents at S$10.90.

OCBC was up 2.8 percent or 30 cents at S$10.90, and OUB was up about 1 percent or 10 cents to S$9.50.