DBS to buy ANZ's Asian retail, wealth units; Q3 profit unchanged

DBS Asia Hub at 2 Changi Business Park Crescent.
DBS Asia Hub at 2 Changi Business Park Crescent.PHOTO: ST FILE

SINGAPORE - DBS Group Holdings, Singapore's biggest bank, reported on Monday (Oct 31) third-quarter profit that was little changed from a year ago as it announced it had agreed to buy Australia & New Zealand Banking Group's wealth and retail businesses in five Asian countries.

The acquisition price was not disclosed.

For the three months to Sept 30, DBS said it earned net profit of S$1.07 billion, unchanged from a year earlier. The performance beat the average forecasat of S$1.04 billion by analysts polled by Bloomberg.

Bad loan provisions jumped to S$436 million from S$178 million in the year-ago quarter.

DBS, OCBC and UOB have had to hike provisions for loan losses tied to the oil and gas industry, which has been hurt by lower energy prices. But bank profits have also been pressured by the slowing economy and a slump in the Singapore interbank offered rate - a key benchmark for local interest rates - to a one-year low, which has curbed the amount lenders charge for loans.

DBS's net interest income at S$1.82 billion was little changed from a year ago. Net fee and commission income rose 19 per cent mostly on revenue from wealth management and investment banking. Other non-interest income gained 32 per cent because of gains from investment securities and trading income, DBS said.

DBS also announced on Monday it has agreed to acquire the wealth management and retail banking business of ANZ in Singapore, Hong Kong, China, Taiwan and Indonesia for approximately S$110 million above book value.

The portfolio of businesses being acquired represent total deposits of S$17 billion, loans of S$11 billion, investment asset under management (AUM) of S$6.5 billion and total revenue of S$825 million for FY2016. They serve about 1.3 million customers, of which over 100,000 are affluent or private wealth customers and 1.2 million are retail customers, said DBS.

The bank said that with the acquisition, it will also add S$23 billion in wealth AUM to its books, with high net worth clients accounting for S$6 billion. This will take DBS' high net worth AUM and total wealth AUM to S$115 billion and S$182 billion respectively.

DBS said the acquisition will also add a large customer franchise in Indonesia and Taiwan, which are key markets for the bank. In Indonesia, DBS will gain about 410,000 customers, effectively increasing its base by six times. In Taiwan, DBS will add around 530,000 customers, expanding its base by 2.5 times. A significant portion of these are credit card customers.

DBS said that with a larger scale in both markets, the bank will be able to fast-track the build-out of its digital strategy.

It also expects the transaction to create significant value for the bank and be return on equity and earnings accretive one year after completion.

Said Tan Su Shan, DBS group head of consumer banking & wealth management of DBS: "Over the years, DBS has made significant strides in the wealth business, and recently became the first Singapore and Asian bank to break into the top five private banks in Asia-Pacific. This acquisition will further cement our leadership position.

"At the same time, the transaction provides us with a significant consumer platform in Indonesia and Taiwan that will enable us to more quickly build out our digital agenda."

ANZ Bank shares were halted in Sydney trading pending an announcement.

The sale marks a major step in ANZ Bank's drive to unwind its decade-long expansion into Asia. It had previously been seeking to earn as much as 30 per cent of profit from outside Australia and New Zealand by 2017. However the operations have dragged down the bank's return on equity and the Melbourne-based bank has been seeking to offload some of its investments across the region.

Over the past year, the nation's third-largest bank by market value has also cut its Asian trade finance exposure and closed its SME business lending operations in five Asian countries.

The transaction is not expected to have a material impact on DBS' capital position, earnings or net asset value per share this year. The acquisition of the businesses in each jurisdiction is independent of each other. Subject to obtaining regulatory approvals, the transaction is anticipated to be completed progressively from 2Q2017 onwards, and the target is for full completion in all markets by early 2018.