DBS ‘Committed’ to Danamon Ambitions
DBS Group Holdings’ planned acquisition of Bank Danamon, a mid-size lender in Indonesia, is expected to help the Singapore-based lender expand its reach in Southeast Asia, according to a senior company official.
“As we expand steadily in Asia, I am heartened that DBS’s organic growth initiatives have enabled us to deliver consistently strong performance,” DBS chairman Peter Seah said on Friday, in a statement to Singapore’s stock exchange.
“Underscored by our confidence in Asia and in particular Indonesia, we are committed to pursuing the Danamon transaction and will be fully guided by Bank Indonesia at every step of the way.”
Seah’s comments come as the lender awaits approval from the Indonesian central bank for its planned $7.2 billion acquisition of Bank Danamon after new rules to restrict bank ownership were announced by Bank Indonesia.
The deal, first announced in April, has been in limbo since Indonesia said it planned to restrict single ownership of domestic banks to 40 percent, although some exemptions will be allowed.
Tjandra Lienandjaja, an analyst at BNP Paribas Securities Indonesia in Jakarta, said the central bank’s recent ruling would provide leeway for DBS’s Bank Danamon acquisition.
“We believe the new regulation will pave the way for DBS to conclude its proposed acquisition of Bank Danamon and other planned acquisitions by foreign banks,” Tjandra said in a note sent to the Jakarta Globe last week. Tjandra said the ownership cap was aimed at strengthening the country’s banking system.
Under the new limitations, a financial company, bank or non-bank, can own up to a 40 percent stake in an Indonesian bank. The ruling also says that a non-financial company can own up to 30 percent of a bank and individual or family ownership is limited to 20 percent.
Currently, a single foreign or domestic investor can hold up to a 99 percent stake in Indonesian banks.
DBS’s net income rose 10 percent to S$810 million ($650 million) in the April-June period from a year earlier. The result was ahead of an average forecast of S$795 million, according to six analysts surveyed by Reuters, but below the first quarter’s record S$933 million profit.
Singapore state investor Temasek Holdings owns about 29 percent of DBS, but its stake would rise to 40 percent if the DBS-Bank Danamon deal goes through, as Temasek holds a controlling stake in Bank Danamon.
Piyush Gupta, DBS chief executive, said that the bank’s loan pipeline was healthy and the lender was not seeing stress on its loan book, but he added that the bank faced “headwinds” due to an expected slowdown in trade financing.
DBS’s net interest income, or income from its core lending business, rose 10 percent to S$1.3 billion from a year earlier as loans expanded by 22 percent, although the bank’s net interest margin dropped 8 basis points from a year earlier.
DBS shares rose 0.4 percent to S$14.75 on Friday in Singapore.