BWBB3033 INTERNATIONAL BANKING

FIRST SEMESTER SESSION 2019/2020 (A191)

GROUP D

CASE STUDY : TRANSFORMATION OF DBS BANK

SUBMITTED TO:
DR. EDDIE ERMAN CHE JOHARI

PREPARED BY:

NO NAME MATRIC NO
1. WAN AHMAD NABIL BIN WAN MOHD HATIM 256432
2. SITI HUMAIROH BINTI HADARI 256702
3. NURUL NISHA NATASHA BINTI KHASIM 258959
4. NURATHIRAH BINTI KAMARUDDIN 258996
5. NUR TASNEEM BT MOHD ZIN 259018
6. AHMAD FAWWAZUL KHAIR BIN AHMAD KHAIRI 259191

SUBMITTED DATE:
12 DECEMBER 2019
1)What were the characteristics of the Singaporean banking system that led to a clearly
defined boundary for foreign banks operated in Singapore? Please elaborate your answer
with appropriate supports from theories and empirical evidence from academic journal.

Today, DBS Bank has make transformation itself from just being a dominant government-
backed bank which is only a protected banking environment into an aggressive regional bank. It
prepares to take on leading financial houses in East Asia. Before this, DBS Bank is focusing only
the bank system in Singapore. It has less interaction with other banks especially foreign bank.

For an information, banking industry in Singapore is normally protected from foreign

competition. Singapore provides clear vision that it was restrictions on the number of branches,
ATMs and also the scope of operations kept the large cohort of foreign banks. The main reason
because DBS Bank is considering a method to ensure diversify on the activities especially in
products and services or geographically offered. This is significant in order to raise the minimum
scale of operation to keep competitive and intensify ability to generate the profit.

DBS Bank also is filtering new bank before approves in order to issue them. So, it is not
easy to enter or participate Singapore market. Based on academic journal, liberalisation is the
major characteristics. At first the liberalisation of Singaporean bank opens its doors to merger and
acquisition and being an aggressive regional bank. There are series of merger and acquisition done
by Singaporean bank such as in April 2001, DBS Bank acquired Hong Kong’s fourth largest bank,
Dao Heng Bank, for US$5.7 billion as part of its regional expansion plans. On 12 June 2001,
Singapore’s third largest bank, Overseas-Chinese Banking Corporation (OCBC) announced a
S$4.8 billion bid (voluntary general offer) for Keppel Capital Holdings (KCH), which owns
Singapore’s smallest Bank, Keppel TatLee Bank. Two weeks later, on 22 June 2001, DBS
Holdings Group (which owns Singapore’s largest bank, DBS) made an unsolicited bid of S$9.4
billion for Overseas Union Bank (OUB), the fourth largest bank.

These mergers significantly increased the bank’s deposit bases, which were important
to promote competitiveness, even if that meant a loss of domestic market competitiveness.
The liberalization and enlargement of banks were to expand their non-deposit taking
business, transforming their business models from traditional banking services to more
complex financial institutions offering an extensive and sophisticated financial products and
services to an expanded customer base in regional and global markets.

An interesting issue to note is that with deregulation of Singapore’s banking services, the
period 2000 to 2005 faces an increase in total factor productivity (TFP) than before the
liberalization take place. Economic theory states that with deregulation, the level of competition
increases and in turn improves efficiency and productivity. As an example, one of the biggest
banks in Singapore DBS experienced TFP growth higher than pre-deregulated period with its
merger with POSB in 1998. Many would suggest that deregulation leads to mergers improves
efficiency as mergers remove the redundancies and raises the level of efficiency. And the main
reason why TFP could increase by merges is that it will increase pure technical efficiency (PTE)
and scale efficiency (SE).

Besides having a larger consumer market and could offer lots of product, merges and
acquisition also meant that they will have more capital. This not only complied with Basel
requirements but also allowed local banks to strengthen their position following the Asian
financial crisis that has just happened before the liberalization phase in a manner that was
aligned with state development strategies.

Liberalization of Singapore Banking target to consolidate and strengthen Singapore’s

position as the dominant regional financial centre. Nowadays the liberalization of banks
focuses more on the fintech as an example in September 2018, Singapore announced that fintech
and other non-bank financial institutions will be granted access to the Fast and Secure Transfers
(FAST) network for real time payments. It is a major step towards making our payments system
open, accessible, and competitive. It allows greater competition and spur greater innovation in
finance. There are essentially three key forces driving this transformation: pervasive mobile
internet access, the rise of big data, and the growth of platform ecosystems as a major new business
model in finance.

But despite the liberalisation, Singapore need to have a strong anchor. To ensure that they
preserve the trust and stability that are the pillars of the Singapore banking system. That is why
MAS is constantly working with the industry and other government agencies to put in place the
enabling infrastructure to help banks to better harness the benefits of new technologies. They also
constantly review the regulatory framework to balance between encouraging innovation and
managing risk in the banking systems.

The underlying belief was that the excessively stringent regulatory regime was constricting the
development of the financial sector. The government wanted to boost the strength and
competitiveness of its domestic banks before being required by the World Trade Organization
(WTO). Monetary Authority of Singapore (MAS) embarked in 1999 on a major programme to
open up and liberalise Singapore’s financial sector across the board, in banking sector. Now, the
liberalisation of the banking industry has achieved it key objectives. Singapore is one of the leading
financial centres in Asia and plays an enhanced role in financing growth in Singapore.
2. What were the actions taken by the Singaporean government to prevent bank runs?
Explain how these actions can help banks’ survival especially during a turbulence time.

From the Case 19 that have been researched, there are several action that being taken by
the Singapore government to prevent bank runs. The first action is by merger of Development
Bank of Singapore Limited(DBS) with Post Office Saving Bank(POSB). By doing this merger,
both of the bank get a benefits. One of the benefits is, POSB will get an expertise of liquidity
management from DBS, customer base and also will get a higher return on deploying funds. Next,
the benefits of the merger, POSB can help DBS in helping the bank with bad loans using the cash
reserve. Other than that, both of the bank can saving because of the merger. The scale of economies
can be getting from the cut cost of the office in the back operation. From the Case 19, the saving
cost that being calculated is nearly to S$ 17.6 million.

The other step that being taken by Development Bank of Singapore Limited(DBS) is by
taking over of Thai Danu Bank in Thailand. This has help DBS to expand their market into
Thailand market. At that time Thai Danu itself is looking for a good and strong partner that can
help them during the difficulty time. Thai Danu is a good deal because is a good and strong bank
in Thailand which has be undervalued because of the economy crisis that happened.

Other than that, the step that have been taken by Development Bank of Singapore
Limited(DBS) is by improving their targets of objective to be the top banks in Hong Kong and
Southeast Asia market. The first objective is by increasing the competitive stimulus of the bank.
The initiative that being taken is by allowing much more foreign bank to enter the local market.
The first foreign chief executive of DBS also encourage the existing bank to merger which acquire
the bank of overseas. He also allow Qatar First Bank or also known as QFB’s to expand the size
and scope of the business. The next objective is by increasing the cost of competitiveness by
reducing the minimum cash of the balance and capital. The third objective is by improving the
disclosure, which eliminating hidden reserve and give transparency in report of loans that is
classified. The other objective is increasing the flexibility of the operational, which is by shifting
the regulation to risk based of supervision. The last objective to help in enhance the performance
of the bank is by streamline the operation which is divest of the non financial holding.
 The next and the last step that has been taken by Development Bank of Singapore
Limited(DBS) is making a general offer with Dao Heng which is a bank that based in Malaysia.
The bank has a successful credit card business which also has a lot of branches and almost 80
electronic banking centre. The acquisition of Dao Heng give a diversification of business which is
on revenue and asset side. It is beneficial to Development Bank of Singapore Limited(DBS) since
the bank can access to the excess liquidity of Dao Heng. The other benefits that is gain by DBS
through this acquisition is calculated almost S$ 124 million. The revenue benefits from DBS is
from Development Bank of Singapore Limited treasury management of Dao Heng is S$ 1.15
billion which is the back office cost of synergies. This step is also give the platform for the bank
to expand business to the China and helping in it IT investment. Using this step, it have make DBS
to become a strong regional brand in Hong Kong and Singapore. This is all the steps taken by the
Singaporean government to prevent bank runs and help the bank to survive especially during the
turbulence time.
3) Given the characteristics of Singaporean banking system as discussed in the text, what
was the best organizational structure of foreign bank entry into the Singaporean banking
system? Relate your answer with Singapore’s economic development, financial system
development, and regulatory approach towards foreign bank entry.

Based on the case, the best organizational structure of foreign bank entry into the Singaporean
banking system was Dao Heng Bank Group Ltd as a subsidiary of Guoco group limited based in
Malaysia.Dao Heng Bank Limited Merge all the undertakings of DBS Banking. This group was
Hong Kong’s leading financial institutions with a network of 71 branches and 80 ATMs supported
by a modern call center .

For the Singapore’s economic development, we can see that high profitability and sound
management motivated DBS interest in Dao Heng. Many advantage DBS banking can get from
Dao Heng Bank group that was instant diversification of business on asset and revenue side, can
access to Dao Heng’s excess liquidity and economies of scale from IT investment. Besides, it also
give DBS a strong regional brand. With this platform also, it can expanding into China. Besides,
the country provides one of the world’s most business-friendly regulatory environment for local
entrepreneurs and is ranked among the world’s most competitive economies. In the decades after
independence, Singapore has grown steadily from a low-income country to a nation of high
income. City state GDP growth was among the highest in the world, 7.7% on average since
independence, and 9.2% in the first 25 years. Next, Singapore launched the regional funding hub '
Asia's Infrastructure Exchange ' where demand and supply of infrastructure can be connected,
where infrastructure expertise and funding can be obtained and infrastructure needs met.

In addition, for the financial system development, DBS announced 2.2 billion dollar share
placement in the equity market. The bank’s share price was at 52 week low, rasing considerable
speculation about the timing of the issue. Minority interest in Dao Heng acquisition had raised
concerns about DBS meeting capital adequacy requirement. With the issue, it brought success
contributed to the factor that was equity investor felt DBS was trading at an attractive valuation,
the deal removed uncertainty regarding inadequacy of capital, earning announcement in the
previous quarter had reflected a very conservative approach towards provision and lastly the
investor also believed integration between DBS and Dao Heng was proceeding well, synergy
benefits were expected soon.

Lastly, Singapore regulatory approach to the foreign bank was commitment to sustainability that
was driven by a sense of purpose to create long-term value through healthy and responsible
management of our sector. The sustainability strategy is based on three pillars that was responsible
banking, responsible business practices and social impact. The most important resource on people
and take into account environment and societal considerations in day today business operations. It
also seek to be a Force for Good by supporting social enterprises businesses with a double bottom
line and giving back to the communities in which DBS operate.
4. Critically analyze how the initiatives taken by the Monetary Authority of Singapore
(MAS) to reform the Singaporean banking sector can enhance banks’ competitive strengths.
In your answers, elaborate the mechanisms of how the initiatives can help Singaporean
banks to survive in a more competitive banking market
5. From your point of view, what was/were the contributing factor/s that made DBS bank to
become a leading regional bank in 2003? Justify your answers based on your knowledge in
banking and the information from the case study.

Based on my point of view, the contribution factors that made DBS bank to become a
leading regional bank in 2003 is stellar management team. Growing up a bank requires a creative
and experience leadership team. Without it, growth is not going to happen. This can be seen when
DBS Bank make their first move by changing their personnel. This action will give a good impact
to the growth of investors because the investors prefer to invest their money to the bank that have
a good track record and a reputation for being creative. With the strong management team, DBS
Bank able to come out with many marketing strategic that can use to collect more funding. One of
the ways is by giving the deal that could be removed or minimize the uncertainty regarding
inadequacy of capital. This make the investors more attractive and confidence with DBS bank.

Next, DBS Bank unable to become a leading regional bank if they only focusing on their
country market. For bank to grow, they need a large target market to maintain and strongest their
position. The expansion will attract the investor to invest in the bank because they believe it will
give a greater chance to success and gain profit. DBS Bank successful expand their business by
buying the stake from Thai Danu Bank, Wing Lung Bank of HK, Mitsubishi Bank and other to
strongest their position. The integration between DBS and Dao Heng will give a synergy benefit
in future.

Finally, valuation of growth stocks are attracting to many investors because they believe
that the price will be raise in future. Investing in high-quality industries trading at attractive
valuation rates will lead to higher returns over the long term. This situation give a good expectation
to the investor regarding their capital gain on their investment. The equity holder of DBS bank feel
trust and confident with the DBS Bank cause they felt that the bank was trading at an attractive
valuation in the market.
 References

Speculand, R., & WONG, A. (2016). DBS Bank: Transformation Through Strategy
Implementation.
https://www.nomurafoundation.or.jp/en/wordpress/wp-content/uploads/2014/09/20020307-
08_Denis_Hew.pdf
http://gpn.nus.edu.sg/file/Karen%20Lai_GPN2015_002.pdf

http://www.theasianbanker.com/updates-and-articles/singapore%E2%80%99s-banking-
liberalisation-moves-on-to-the-next-chapter-with-digital-banks
https://www.worldscientific.com/doi/pdf/10.1142/S0217590810003948