UUM COLLEGE OF BUSINESS

UNIVERSITI UTARA MALAYSIA

BWBB3033 INTERNATIONAL BANKING

(GROUP A)

FIRST SEMESTER SESSION 2019/2020

TITLE:

CASE STUDY

PREPARED TO: DR. EDIE ERMAN BIN CHE JOHARI

PREPARED BY:

NAME MATRIC NUMBER

NUR ATIQAH BINTI MOHD WAZAI 246739
NG YEU TIEN 254206
TAN CHING CHI 255109
KAVINISHA A/P VINCENT 256241
MARTINA A/P HARIDAS 255502

QUESTION 1

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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
journals.
Singapore is a vibrant internationally renowned financial centre representing not only
its domestic economy per se, but the whole Asia Pacific region as well. The merger of the
former 6 local banking groups into the current 3 major local banks (DBS, OCBC and UOB)
was a major move in the local banking sector. Factors such as a stable economic and political
climate, friendly legal and tax reforms, reputation for transparency, and strict enforcement of
corruption and money laundering have led to the role of Singapore as an International
Finance Centre. This has culminated in enhancing the capacities of the banks, developing
their management teams, and increasing operational efficiency.
They widened their scope of business activities and also strengthened their skills for
market and risk management. Local banks today are "one stop stores" designed to meet all
their banking clients ' needs. Local banks have started to expand internationally to establish a
global presence through overseas acquisitions with greater financial strength from the
mergers and increased domestic rivalry.
The supremacy of foreign banks rendered Singapore a major competitive
participant in the global banking scene. Regional banking market relentless rivalry
stimulated the creation of innovative financial products and established beneficial
pricing policies. Merging lets local banks get to the national level. After consolidating
into 3 local banking groups which is UOB, DBS, OCBC and 6 local banking groups
culminated in increasing their operations and capacities and transforming into "one-stop"
banks that can satisfy any financial need.
The 1999 liberalization of the banking sector culminated in granting complete
banking licenses to overseas banks, offering offshore banks greater independence in
SGD wholesale operations, reconsidering corporate governance, raising the cap on
international shareholding in local banks, and reclassifying limited banks and enabling
wholesale operations to take place.

Due to intense government efforts, the creation of sanctioned securities, and the
emergence of Singapore Exchange which drew thousands of foreign firms, Singapore
became a lucrative investment hub. Investment banks meet the needs of investors by

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underwriting, mediating between the borrower and the lender, and reorganizing business
assets such as mergers and acquisitions.

QUESTION 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.
Increase competitive stimulus by encouraging the existing banks to merge and acquire
banks overseas. Mergers and acquisition are one of the important things in banking sector to
make financial gains enormously. The aim of merger and acquisition is to improve the
economics of scale and at the same time can prevent bank runs. A merger means of
combination of two companies and acquisition means takeover.
Mergers and acquisition bank just not only get the brand name, new structures,
product offerings but also give the opportunities to cross sell the new accounts that required.
This process not to common in this banking sector.
We can see that DBS have announced that the acquisition of Thai Danu Bank and
them, DBS. DBS familiar with Thai Danu Bank so that the main reason is which DBS wished
to expand the operations beyond its home base and believed that Thai Danu was undervalued
because of the economic crisis. In this acquisition, the deal was expected to be a win-win
situation as DBS wanted to expand and Thai Danu was looking for a strong partner during
difficult times.
Increase operational flexibility of the central bank in Singapore, the Monetary
Authority of Singapore (MAS), launched a series of initiatives to liberalise the financial
system. The aim of this liberalization was to consolidate and strengthen the Singapore
position as dominant regional financial centre. The government want to boost the strength
and competitiveness of its domestic banks before being required by the World Trade
Organization (WTO) to open the financial markets to global competition.
The liberalization program sought to enable the local banks to enhance their
competitive strengths and encouraged to consolidate and expand overseas as a preparation for
the entry of the foreign banks. Mergers also allowed more rapid growth as organic growth
was considered too slow and inadequate for the creation of a major regional bank.

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 A streamline means of the process of fewer the errors and delays. It’s can improve the
efficiency of the process, simplifying or eliminate the unnecessary steps in organization or
business, or taking other approaches.

Singapore bank were completely reorganised into Treasury and Markets, Logistic and
two newly formed groups which is Personal Banking and Investment Banking, a new division
that dedicated to handling small and medium-size companies was formed. DBS would like to
increase “wallets share” which is the range of products and services sold to each customer by
designed at the different phases of their life-cycle. The banks sought to focus more directly
on core business such as assets. Besides that, the changes were come from the pressure of
clients as well so companies increasingly demanding more sophisticated instruments for
funds mobilization, liquidity management, structured finance, investment banking. The
streamlining of DBS operation was undertaken to deal with these demands from the
consumers.

QUESTION 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.

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.
The chairman of the MAS encouraged banks to merge or bring in equity partners ，
citing the importance of hiring top-flight international talent, economies of scale for
investment in technology, other capital investment and the need to diversify geographically.
Mergers would also allow more rapid growth, as organic growth was considered too slow and
inadequate for the creation of the major regional bank.

Thai Danu one of the strongest banks in Thailand that could compete with large local
and foreign banks. DBS wished to expand its operations beyond its home base and believed

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that Thai Danu was undervalued because of the economic crisis. DBS wanted to expand, and
Thai Danu was looking for a strong partner to shore it up during difficult times. Through Thai
Danu, DBS bought 99.9% of Sri Dhana Securities for an estimated S$8.39 million (S$0.48
per share). This would enable Thai Danu to offer a wide range of services and thus capitalize
on DBS ‘s expertise. DBS invest in Thailand，is a long-term strategy. Thai Danu will form
an integral part of the DBS regional network. Thai Danu Bank is one of the best banks in
Thailand in terms of asset quality and, with Singapore’s backing, it will become more
innovative in terms of customer products. The 50.27 % stake in Thai Danu was part of the
drive to become a regional player with a global reach.

Following the merger, Thai Danu started using international norms for calculating
loan arrears, 3 months without payment. Its percentage of NPLCs grew substantially. The
bank adopted a cautious approach and deferred lending until the economy stabilized. Thai
Danu was recovering from the worst of the crisis. It was exercising prudence in its lending
decisions, could raise capital in the near future, and its operations were meshing well with
DBS.

Because of restriction on foreign ownership of Malaysian banks, and the other

economies of Southeast Asia still struggling for the after-effects of the crisis, DBS looked
further East. Hong Kong was believed to be an attractive market, because of its large and
developed financial market, and because it was believed to be a conduit into China. Dao
Heng Bank Group Ltd, a subsidiary of GuoCo Group Limited based in Malaysia, was one of
Hong Kong’s leading financial institutions with a network of 71 branches and 80 ATMs or
electronic banking centre, supported by a modern call centre and Internet service channel as
well as an overseas network. It also had large credit card business.

High profitability and sound management motivated DBS ‘interest in Dao Heng. The
acquisition was strategic as it provided a base for DBS’ expected future expansion into
China. With its large asset base (S $36 billion), Dao Heng instantly diversified DBS’s asset
and revenue base. Cost synergies for back-office integration of Dao Heng and Kwong On
Bank, and revenue synergies arising out of DBS’ treasury management of excess liquidity
with Dao Heng were expected to amount to HK$ 540 million (S $124 million). Smaller banks
had been selling at price-to-book ratios ranging from 1.3 to 1.5. DBS had paid 3.3 times the
book value. The deal helped boost the HK stock market but sent Singapore shares spiralling
downwards when shares of the companies involved were requited. Dao Heng acquisition was

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expected to generate a return on investment lower than DBS’s cost of capital. By early 2003,
DBS had become a leading regional bank. DBS experienced several changed in its top
leadership.

QUESTION 4

Critically analyse 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.

In ongoing decades, international exchange products and monetary administrations

has gotten progressively significant. To encourage such exchange, many financial
organizations have also become international. Banks have extended internationally by setting
up foreign backups and branches or by taking over set up foreign banks. The
internationalization of the financial sector has been prodded by the advancement of financial
markets around the world. Created and creating countries the same presently progressively
enable banks to be foreign-owned and permit foreign entry on a national treatment premise.
Through the liberalization program is sought to maintain local ownership of banks. The
existing capital of 40% on foreign ownership of domestic banks was maintain. To enable the
local banks to enhance their competitive strengths. Banks were encouraged to consolidate and
expand overseas, so as to prepare for the entry of foreign banks.

Financial liberalization of this sort continues, among different reasons, on the reason
that the increases from foreign entry to the local financial framework exceed any misfortunes.
Several authors have tended to the potential advantages of remote bank section for the
household economy as far as better asset allocation and higher effectiveness. The author
Levine (1996) explicitly specifies that foreign banks may (I) improve the quality and
accessibility of financial services in the local money related market by expanding bank
rivalry, and empowering the more noteworthy use of progressively present day banking
abilities and innovation, (ii) serve to stimulate the advancement of the fundamental bank
supervisory and legitimate system, and (iii) upgrade a country's entrance to international
capital.

Monetary Authority of Singapore (MAS) urge banks to merge or bring in foreign

equity partners. Mergers and acquisitions (M&A) are exchanges in which the responsibility

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for, different business associations, or their working units are transferred or solidified with
different entities. As a part of strategic management, M&A can enable endeavours to develop
or scale back and change the idea of their business or aggressive position. An exchange
lawfully organized as a procurement may host the impact of setting one gathering's business
under the backhanded responsibility for other gathering's investors, while an exchange
legitimately organized as a merger may give each party's investors fractional possession and
control of the consolidated enterprise.

Revelation measures which heretofore had been tremendously criticized as being

among the weakest in Asia were raised, the acts of keeping up concealed reserve stopped,
least money adjusts were brought down and capital rules which were impressive stricter than
requirements that commanded by the Bank for International Settlements (BIS) been loose.
MAS executed a five-year program more than 1999 to 2003 to change Singapore' banking
sector. The aim was to strengthen local banks through competition, give Singaporeans with
quality banking services, and improve Singapore's situation as an universal budgetary focus.

MAS staged in the advancement quantifies dynamically, to give local banks time to
overhaul themselves to meet the competition and keep up the security of the financial system.
The MAS also extended qualifying full bank licenses allowing for an expanded scale and
scope of operations in the domestic market. Qualifying Full Banks (QFBs) was made to
separate these banks from the current Full Banks. One of the key benefits concurred to QFBs
was the expanded number of places of business that a QFB can have, contrasted with the
other foreign banks.

MAS likewise conceded eight new Restricted Bank licenses to banks that needed to
extend their discount Singapore dollars (SGD) business. Further, MAS gave Offshore Banks
greater adaptability to loan in SGD and take part in SGD swaps, and considerably more
extensive space to eight Qualifying Offshore Banks. To allow additional finance for offshores
projects was shift form an intensive regulatory framework to risk based supervisory
assessment.

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QUESTION 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.

From my point of view, the contributing factors that made DBS bank to become a
leading regional bank in 2003 is merger and acquisitions with other banks. Merger and
acquisitions make banks available to get more opportunities on basis of regulatory changes
and technological advancement. Merger and acquisitions between banks could make more
concentration, and thusly lower deposit rate.

DBS bank has acquired Post Office Savings Bank (POSB) in 24 July 1998 and it then
become the Singapore’s largest bank in terms of network of branches and biggest bank as far
as domestic assets, overseas assets and total assets as of 1999. Merger between POSB has
added value to DBS in terms of total customer loans and customer deposits, and POSB
amounted for S$13.4 billion of loans and 28.1 billion of deposits; without this deal, DBS
Group’s total customer loans and deposits could have dropped by 2.8% and only grew 21.4%
respectively at the end of 1998. Merger between POSB has also added value to DBS’s net
interest income, and thus doubled operating profit by 13.0% at the of 1998, leading operating
profit continues to grow since 1994. In addition, merger with POSB has lifted DBS group’s
total assets to about 100 billion, and of which POSB produced for S$29.4 billion of assets.
After merger, DBS has improved its net profit and ROE tremendously. Net profit and ROE
have prominently been increased almost 8 folds of S$897 million and 8.7% respectively in
1999. Customer deposits and customer loans on the other hand, have been multiplied since
merging with POSB. DBS has been performing great in all aspects and with a steady and
enduring pace since the merger with POSB in 1998. DBS has slowly become a dominant
banking force in the area.

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 Furthermore, DBS started its operations in Great Hong Kong in 1999 by acquiring
Kwong On Bank from Leung's family & Japanese-based Fuji Bank, and renamed it as DBS
Kwong On Bank Limited. DBS bank has acquired Dao Heng Bank (and its subsidiary
Overseas Trust Bank) in 2001. The three banks were later merged under the trading name of
DBS Bank (Hong Kong) Limited. International operation would help the bank in need of the
fund to meet its working capital. In 20 April 2001, DBS bank, has acquired Dao Heng Bank
in a deal worth HK$45 billion (US$5.8 billion) giving DBS a substantial presence in Hong
Kong. In my opinion, the acquisition of Dao Heng is a good move for DBS Bank where this
move has effectively creates the first Asian regional bank. This is because the acquisition of
Dao Heng makes DBS the fourth-largest bank in Hong Kong in terms of assets after HSBC,
Bank of China and Standard Chartered. The acquisition also makes DBS a top-five player in
the Hong Kong and Singapore markets and the only bank to have a significant presence in
both. Following the acquisition, almost 40 per cent of DBS's revenue will come from outside
its Singapore base. The acquisition will boost DBS Bank’s assets to a total of US$81 billion
when it is completed. This shows that the deal is benefit for DBS Bank. DBS expects gains of
HK$275 million per year in revenue from the merger of Dao Heng with DBS Bank. On the
cost side the bank expects to see savings in the combined operations of HK$265 million per
year. Rating Agency - Moody's affirmed DBS' credit rating and placed Dao Heng under
review for a possible upgrade. This shows that the rating for DBS Bank may be continuous to
increase after the acquisition.

In conclusion, merger and acquisitions between banks may improve efficiency, market
influence, economies of scale, and capacity. Moreover, cost and profit efficiencies can be
improved through merger and acquisitions, which would initiate DBS banks to bring in more
profits by leveraging on interest spread.

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REFERENCES

1. The Banking Industry and the Major Players in Singapore. (n.d.). Retrieved from
https://www.guidemesingapore.com/business-guides/managing-business/banking-
funding-and-finances/banking-industry-and-major-banks-in-singapore.
2. Hui, W.-T. (1997). Regionalization, Economic Restructuring and Labour Migration
in Singapore. International Migration, 35(1), 109–130. doi:10.1111/1468-2435.00006
3. DBS Annual Report 2016. (n.d.). Retrieved December 7, 2019, from
https://www.dbs.com/annualreports/2016/index.html.
4. GPN Working Paper Series - National University of Singapore. (n.d.). Retrieved
December 5, 2019, from http://gpn.nus.edu.sg/file/Karen Lai_GPN2015_002.pdf.
5. Performance Changes of DBS after Merger with POSB. (n.d.). Retrieved December 6,
2019, from https://hyrmina.com/paper/3aade1874cc7caf0346fe48b2c062bc1.
6. MAS website. (2019). Retrieved 5 December 2019, from https://www.mas.gov.sg/
7. Supervisory Approach and Regulatory Instruments. (2019). Retrieved 9 December
2019, from https://www.mas.gov.sg/regulation/MAS-Supervisory-Approach-and-
Regulatory-Instruments

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