The acquisition of Citi’s retail operations across several Asian markets will give two of Singapore’s biggest banks additional clout across the region. Kimberley Long reports.
Citi’s retrenchment from its retail banking business in Asia will free up equity for the US bank, but is also creating an opportunity for Singapore’s banks to spread their influence across south-east Asia.
United Overseas Bank (UOB) acquired Citi’s Indonesia, Malaysia, Thailand and Vietnam businesses for S$5bn ($3.68bn). This purchase included the secured lending portfolios, wealth management and retail deposit businesses. Also included are 24 bank branches and around 5000 staff.
During an analyst briefing, UOB deputy chairman and CEO Wee Ee Cheong said the acquisition would double the bank’s customer base to almost 5.3 million, and see the bank become one of the top three card issuers in Malaysia and Thailand.
Overall, Mr Wee believes the deal will be immediately beneficial. “Including one-time cost, we will be earning per share and return on equity [ROE] accretive by 2023 and generate higher returns over time, with ROE up 13% by 2026. Our common equity Tier 1 [CET1] will be restored to above 13% by 2023.”
During the same briefing, UOB group chief financial officer Lee Wai Fai said that the acquisitions would allow for more profitable unsecured exposure, but maintain a healthy, diversified portfolio.
“In terms of financial impact, the acquisition will immediately bring a 1.4 times income uplift and a 1.2 times loan growth in the four markets from our enlarged scale,” he said. “At the group level, we can see an immediate S$1bn incremental income uplift. The transaction is valued at 1.2 times net assets of S$4bn and will be fully funded by UOB’s excess capital. The CET1 impact will be 70 basis points, which is manageable. This results in a pro-forma CET1 ratio of 12.8%.”
DBS, meanwhile, acquired Citi’s Taiwan business for S$956m. The move makes the bank the largest foreign bank in Taiwan by assets. Announcing the news, DBS CEO Piyush Gupta said he expects the acquisition to contribute at least S$250m net profit annually.
Commenting on the acquisitions by the Singaporean banks, Eugene Tarzimanov, senior credit officer at Moody’s Investors Service, says the acquisitions are relatively small, but will strengthen UOB and DBS’s market franchises and retail customer reach, and lead to improved profits.
“While the core capital ratios of the two banks will decrease modestly because of the acquisitions, we expect the capital ratios to recover quickly, supported by its strong internal capital generation,” Mr Tarzimanov says. “The Citi business to be purchased by UOB and DBS is highly profitable and relatively-low risk in terms of problem loans.”
