Singapore's DBS Bank to focus on India and China for growth

By Lee Kah Whye
Singapore, April 5, 2021 : Singapore's DBS Bank, which acquired India's Lakshmi Vilas Bank (LVB) last November, plans to accelerate its business by doubling down on growth markets of India and China.
DBS Group CEO, Piyush Gupta, said this when briefing investors, analysts, and the media at its virtual annual general meeting (AGM) last week.
In spite of the health crisis and economic chaos caused by the COVID-19 pandemic, Southeast Asia's largest lender by total assets achieved its highest ever operating profit of SGD 8.4 billion (USD 6.3 billion). This was an increase of two per cent over the previous year. Total income held steady at SGD 14.6 billion (USD 10.9 billion) which was about the same as in 2019.
Breaking down its performance, the bank said that net interest income was impacted by lower interest rates, but this was offset by growth in loans, deposits and wealth management fees, investment gains, and strong treasury performance.
Total full year income from treasury markets rose 33 per cent to SGD 2.9 billion. This was aided by improved digital pricing capabilities, enhanced processes, and application resiliency. The bank was able to take advantage of the trading opportunities created by last year's market volatility to increase trading income by 54 per cent.
With economic and business uncertainties weighing heavily last year, the bank tightened budget controls and managed to lower expenses by two per cent. General expenses such as travel, and advertising declined. Staff costs benefitted from government grants.
The bank experienced a low rate of delinquencies from borrowers and loan moratoriums have declined significantly from their peaks.
However, it warned that the low interest rate environment will continue to be a challenge.
Looking ahead, it says that it will continue to invest in enhancing its digital capabilities in both retail wealth management and supply chain digitalisation. It plans to launch a digital exchange leveraging blockchain to enhance efficiency of wholesale payments and grow capital solutions.
It will also double down on growth markets of India and China.
In China, DBS chief, Gupta outlined three key areas of focus, which are its upcoming securities joint venture (JV), the consumer finance market and the China Greater Bay Area.
The new JV in China which was announced last September should be ready to go to market in the next few weeks. He added, "We are convinced that China' s opening-up in the capital account is going to present tremendous opportunities. We' re already seeing some benefits of that, as institutional investors from China come out and international investors go into China. So that' s hopefully a big area of growth for us."
Known as DBS Securities (China), the JV company will provide onshore products and services for both domestic and international customers. Businesses that DBS Securities will engage in include brokerage, securities investment consulting, securities underwriting and sponsorship, as well as proprietary trading. DBS has a 51 per cent stake in the JV and has four Chinese investment and asset management firms as partners.
DBS which currently has a consumer finance JV with the Postal Savings Bank of China, is on the verge of launching a wholly owned consumer business in China.
With regards to the Greater Bay Area, DBS continues to be optimistic about the area and is looking to use its presence in Hong Kong to integrated deeper into the market. The Greater Bay Area consists of nine cities and two special administrative regions in South China, including the cities of Hong Kong, Macau and Guangzhou.
As for its plans in India, the bank plans to leverage its acquisition of Lakshmi Vilas Bank (LVB) to expand its India franchise. It is looking to overlay DBS's digital capabilities with LVB's customer base and network to accelerate its business. For SMEs (small medium sized enterprises), it plans to broaden asset-backed businesses.
For retail, it aims to scale up personal savings and current accounts and expand its personal loan portfolio and grow its wealth management proposition plus address the needs of niche non-resident Indians.
Amid market speculation surrounding its takeover of LVB, Gupta assured shareholders that it was not a "forced marriage". The cash-starved LVB was amalgamated with DBS Bank India to accelerate the group' s digital banking push in South India. "The reason we put our hands up is because we knew it will give us the opportunity to expand both organically and inorganically," he said.
The deal significantly increased DBS India's retail customer base from 23 per cent pre-merger to 48 per cent, by adding two million retail and 125,000 corporate customers.
Gupta said: " This is very important because to grow in a country like India, we need a good source of retail sticky deposits and LVB is able to achieve that. When we overlay our digital capabilities on top of this base that we amalgamated, we think the prospects for us are very good."
DBS had recorded amalgamation expenses of SGD 33 million and general allowances of SGD 87 million for LVB, with provisional goodwill of SGD 153 million.
Addressing a shareholder's concerns over financial losses and the merger's impact on DBS's profitability, Gupta said that the goodwill was a "very reasonable cost" to acquire a franchise of 600 branches and 1,000 ATMs across five cities in South India.
For the LVB acquisition, the non-performing loan assets (NPAs) transferred to DBS stood at SGD 212 million. It is fully secured with general provisions at a conservative 9.5 per cent of performing loans or SGD 183 million. Coverage of NPAs was 76 per cent which is considered aggressive.
"At this point in time, we do not believe that we have to take on anymore incremental cost of credit on the LVB portfolio. We think we provided for anything that we might have expected to see in the course of this year," said Gupta. DBS expects the merged entity to achieve profitability in the next 12 to 24 months.