SINGAPORE (Bloomberg) - Oversea-Chinese Banking Corp. is closing the gap on top-ranked Singapore dollar bond arranger DBS Group Holdings, trailing by the narrowest margin on record last quarter.

OCBC helped issue $1.56 billion of offerings at home in the three months to March 31, boosting its market share to 32.4 per cent, more than triple a year earlier, according to data compiled by Bloomberg. DBS worked on $1.62 billion of deals for a 33.6 per cent market share. OCBC was the sole manager on two issues for Singapore Telecommunications Ltd. this year while DBS was on all three of its previous local- currency deals.

Singapore's two largest lenders are vying for a smaller pool of profits, which has pushed them to expand overseas and into investment banking. New rules that require banks to reduce risky holdings, coupled with deposit rates less than 0.5 per cent in the island nation, have prompted companies to sell more bonds in the local currency in the past five years than in the previous decade.

"Domestic growth opportunities are limited for the Singapore banks because the market is already mature," Elaine Koh, a director in Fitch Ratings Ltd.'s financial institutions team in Singapore, said. "It's a competitive environment with tight lending margins."

OCBC helped arrange 19 bond offerings last quarter, Bloomberg-compiled data show. United Overseas Bank ranked third with an 8 per cent market share, followed by HSBC Holdings Plc at 7.3 per cent and Australia & New Zealand Banking Group Ltd. at 6.2 per cent. Issues OCBC worked on included City Developments' $125 million of 3 per cent 2020 notes and SingTel's two sales totaling $300 million.

City Developments' bonds, sold at 100 per cent of par, are trading at 100.25 per cent, according to prices compiled by Bloomberg.

For full-year periods, DBS has led the Singapore dollar bond league tables every year since 2004 except 2008, when OCBC ranked No. 1, Bloomberg-compiled data show.

It's been a "slower start to the year for the Singapore dollar bond market because of the volatility going into 2015," said Clifford Lee, head of debt capital markets at DBS. "New deals have been smaller and less frequent, but we can see the momentum improving."

Deal volumes totaled $4.83 billion versus $3.6 billion in the last quarter of 2014, Bloomberg-compiled data show. Volumes last year were $24.34 billion and $19.82 billion in 2013.

DBS expects private banks to remain an active part of the investor base in Singapore and reckons new deals will come from a diverse range of companies, according to Lee. "We have to toggle between high yield and high grade issues to fit investors' differing preferences as the market continues to stabilize," he said by phone on March 30.

Lenders in Singapore also have to earn more fees such as those paid in bond transactions to increase profits because deposit growth has slowed, Fitch's Koh said.

To increase earnings outside of its traditional business, DBS completed a string of acquisitions from 1999 to 2004 through which it added insurance and brokerage businesses as well as subsidiaries in Hong Kong and the Philippines.

OCBC has had a buying spree on its own that picked up with the acquisition of insurer Great Eastern Holdings Ltd. in 2004 and culminated last year with the purchase of Wing Hang Bank Ltd. for US$5 billion, the largest takeover of a Hong Kong financial institution since DBS offered US$5.4 billion for Dao Heng Bank Ltd. in 2001.

"Another challenge the banks face is the slowing deposit growth in Singapore," Koh said. "With the low deposit rates here, many would prefer to invest their cash rather than hold deposits with the bank. So even if the banks were to grow lending very quickly, how would they fund it? The focus has to shift from volume growth alone to more fee income."

DBS in February reported investment banking fees increased 27 per cent in 2014 to $243 million as a result of more debt capital markets activity. OCBC reported an operating profit from investment banking of $1.98 billion for 2014, up 10 per cent on 2013.

"We're a local bank, Singapore is our home market," Tan Kee Phong, OCBC's head of capital markets, said. "We have to know it well and do well here."