today Wednesday september 14, 2011 12
Monetary Authority of Singapore’s website.
According to the MAS, besides United
Overseas Bank, OCBC Bank and DBS, there
is also the UOB subsidiary Far Eastern Bank,
firstname.lastname@example.org and the OCBC subsidiaries, Bank of Singa-
pore and Singapore Island Bank.
O nce again the possibility of DBS Bank
and Oversea-Chinese Banking Corpo-
ration merging is being raised — this time
Earlier the market had more than a
dozen local banks. First Tat Lee Bank merged
with Keppel Bank and that entity was swal-
by Nomura Equity Research. While certain lowed up by OCBC which had previously
quarters in Government and at Temasek taken over the Bank of Singapore. POSB
Holdings may welcome the possible move, Bank got bought up by DBS while Overseas
a merger of the two will certainly be met Union Bank got taken over by UOB which
with dismay by the business community. had earlier taken control of Far Eastern
Nomura’s speculation comes a year Bank, Lee Wah Bank and Chung Khiaw Bank.
after former Minister Mentor Lee Kuan Yew The inital round of mergers — prior to
called for a consolidation of the local bank- the mid ’80s — did indeed help UOB and
ing sector. Mr Lee felt that the three local OCBC to scale up. But the later rounds did
banks had to combine to expand meaning- not deliver as much and for their respective
fully within and outside of Singapore. customers, especially the SMEs, the reduc-
“I would have preferred personally that tion in choice left many of them stranded
there be only two banks, because I don’t without loan facilities as a different set of
think Singapore is big enough for three risk management rules kicked in.
banks,” he told 600 bankers gathered for In the case of DBS’ purchase of POSB
the 37th annual Association of Banks in Bank, thousands of the latter’s customers
Singapore (ABS) dinner on June 25 last year. were denied banking facilities as DBS felt,
Mr Lee further noted: “You can’t go at the time, that it was not at all viable to
abroad in a big way because there’s a limit to maintain accounts below a certain level
what you can do in the Singapore market and (the policy was later changed).
you need a big solid bank with the capabilities With less competition, transaction costs
and the capital to debt ratios to go abroad.” also went up as the banks started charging
Like Mr Lee, the advocates of merger for services previously free or minimal.
almost invariably cite size as the main rea- And will all the benefits cited by
son for such a move. As Nomura put it: “A Nomura be realised?
merged banking group would rank well After all, there are plenty of overlap-
within the top 30 banks globally by mar- ping customers, especially among the
ket capitalisation and provide a distinct, sought-after wealthier customers who are
wholly pan-Asian franchise headquartered loath to keep all their eggs in one basket.
in AAA-rated Singapore, boosting customer Many are likely to move — at least part of
acquisition and franchise valuation.” their wealth and business — to other banks,
It further noted that: “Geographically, perhaps to foreign banks like Citi, Standard
we believe OCBC would deliver dominance Chartered or HSBC.
of the core SGD (Singapore dollar) market So the merged entity may not have the
(citing a 35 per cent market share) and sum total of the separate banks.
a deep, scaled up ASEAN presence, the Like I had said previously, instead of
latter a key gap for DBS that otherwise spending their time, money and effort in
would require expensive and integration- the local mergers in the mid/late ’80s, per-
challenging acquisitions to bridge. haps they would have been better off pur-
“Operationally, OCBC’s peer-leading, chasing banks overseas. But then in those
strongly branded fee income franchise days, the MAS did not really encourage
would offer DBS opportunity to integrate our local banks from venturing too much
and scale-up highly synergistic product overseas. The MAS probably felt that our
platforms i.e. life insurance, private bank- banks just did not have the capacity or the
ing and Islamic finance; while expertise resources to take on foreign partners.
in SMEs (small and medium sized enter- Although much of their more recent
prises), CASA (current accounts/savings experience overseas has been far from
accounts) capture and risk management satisfactory, our local banks should take
would also be very valuable.” another look at foreign ventures.
For the critics, a merger would mean Let’s at least maintain the current trin-
one less competitor — not good where cus- ity and if someone or some group here
tomers really want to be spoilt for choice. can raise the money and resources to start
I had argued against further consolidation another bank, it should be looked upon
then and do so again. favourably. ¢
Barely two decades ago, we had more
than half-a-dozen independent local banks, Conrad Raj is Today’s editor-at-large.
now we have just three–four, if you in-
clude the locally-incorporated company of >> dbs to double China
America’s Citibank and six if you look at the share of group profit 36