DBS banks $1b on Shenzhen lender in its biggest China foray

DBS Group is buying a 13 per cent stake in privately owned Shenzhen Rural Commercial Bank (SZRCB) for 5.29 billion yuan (S$1.08 billion).

The deal, which is part of DBS' plan to accelerate its expansion in China's Greater Bay Area, is the bank's biggest acquisition in that country.

It positions DBS to increase its stake in the Shenzhen lender after China eased rules on foreign ownership in the financial services sector, the bank said on Tuesday.

DBS chief executive Piyush Gupta said: "We see this as a highly complementary strategic partnership that will allow us to double down on the Greater Bay Area and leverage SZRCB's local network and know-how.

"At the same time, we would be able to support the continued growth and digital transformation of SZRCB through our regional presence and digital capabilities."

The deal is also in line with the group's strategy of investing in core markets, which also include Singapore, Indonesia, India, Hong Kong and Taiwan.

The investment is expected to be completed following approval by the China Securities Regulatory Commission. It will make DBS the largest shareholder in SZRCB and give it representation on the Chinese bank's board.

DBS expects the investment to be immediately accretive to earnings and return on equity.

It will acquire 1.35 billion new shares in SZRCB at 3.91 yuan apiece, representing 1.01 times the book value per share as at Dec 31 last year. DBS said that it would fund the investment using internal cash resources.

SZRCB operates one of the largest branch networks in Shenzhen, where 210 of its 217 branches and more than 2,100 self-service terminals are located.

It has around five million retail customers and 170,000 corporate clients. As at Dec 31 last year, it had 404 billion yuan of deposits and 519 billion yuan of total assets.

Some 40 per cent of its total loans are retail-based and the remainder are in the corporate segment, largely to local small and medium-sized enterprises.

The Shenzhen bank generated 4.8 billion yuan in net profit after tax for the year ended Dec 31, 2020. DBS said that SZRCB had a strong track record of profitability, achieving average return on equity of more than 17 per cent since its establishment in 2005.

Reuters reported on Tuesday that DBS was among potential bidders for parts of Citigroup's consumer business in Asia.

DBS said last month that it was looking to increase its presence in China and India as part of efforts to expand into the wider region.

Last November, DBS completed its takeover of cash-strapped Lakshmi Vilas Bank (LVB) in India, which added 550 branches and 900-plus ATMs to its network in the country.

Mr Gupta noted in Tuesday's statement that executing another strategic transaction shortly after amalgamating LVB in India was "testament to our ability to be nimble and grow, as we leverage our strong capital position".