DBS Group acquires Citigroup’s consumer business franchise in Taiwan

• Deal to be funded by excess capital
• DBS’ net profit grew 46% YoY
• DBS entered into two big transactions in the past 10 months

DBS Group (DBS) announced its acquisition of Citigroup’s (Citi) consumer banking franchise in Taiwan. The transaction is worth $706.6 million (SGD 956 million), which will make DBS the largest foreign bank in the country by assets. The bank plans to inject $1.62 billion (SGD 2.2 billion) into the Taiwan unit, $886 million (SGD 1.2 billion) of the amount will be used as capital to support incremental risk-weighted assets and capital needs.

Deal to be funded by excess capital

The transaction will be funded by excess capital, with no impact on bank’s ability to pay dividends. Chng Sok Hui, group CFO of DBS, remarked, “Citi will pay DBS for the liabilities, while DBS pays Citi for the assets. At completion, we don’t think the book will move very much.”

DBS will take on over 3,500 staff from Citi’s consumer banking franchise in Taiwan which has 2.7 million credit cards, 500,000 deposit and wealth customers, and 45 branches. As of September 2021, Citi Taiwan posted an earning asset base of $14.9 billion (SGD 20.3 billion), in which 70% are sticky low-cost deposits.

The transaction is expected to be completed in the middle of 2023, subject to regulatory approval. Citi will continue to operate its consumer banking franchise in the country until completion, with no immediate changes in the way it serves its customers.

Piyush Gupta, group CEO of DBS shared, “Citi Consumer Taiwan is a highly attractive, high-returns business that is expected to contribute at least $184 million (SGD 250 million) annually in net profit to DBS after Covid-19 recovery. Post-transaction, DBS Taiwan will be propelled to the top ranks of Taiwan’s banking sector.”

On the integration of the technology and operating platforms of the two banks, and meeting consumers’ expectation of service quality and standards, Gupta remarked, “We think we can get the integration done within 18 months subject to regulatory approval. The client servicing depends on our strong partnership with Citi. 3,500 employees showed interest with us to make sure that customers are well protected.” Gupta also added that the expected customer attrition is around 10 to 20% which has been factored into their financial modeling and projections.

DBS’ net profit grew 46% YoY

DBS posted a total income of $8.1 billion (SGD 11 billion), up 3% year-on-year (YoY) in the first nine months of 2021. Net profit was recorded at $3.99 billion (SGD5.41 billion), up 46% YoY. Net interest income down 9% while net interest margin stood at 1.45%. The bank posted total loans of $20 billion (SGD 28 billion), up 8% YoY while deposits grew 4% YoY. Fee income stood at $2.28 billion (SGD 3.1 billion), up 17% YoY.

The bank kept cost-to-income ratio (CIR) at 44% in the first nine months of 2021. Non-performing assets (NPA) stood at $4.8 billion (SGD 6.57 billion) while non-performing loan (NPL) ratio stood at 1.5%, which improved from 1.6% in the previous year of the same period.

Gupta remarked, “The acquisitions we have made since the start of the pandemic have given us a platform to build meaningful scale in some of our core markets.”

The bank entered into two big transactions in the past 10 months

This transaction is part DBS’ longstanding goal of growing in large emerging markets. In 2021, DBS bought a 13% stake in Shenzhen Rural Commercial Bank (SZRCB) for $797 million (SGD1.08 billion), as part of its plans to accelerate expansion in China’s Greater Bay Area. SZRCB has more than 5 million active retail customers and more than 170,000 active corporate clients. The bank operates 210 branches and more than 2,100 self-service terminals in Shenzhen. In 2020, Lakshmi Vilas Bank was amalgamated with DBS Bank India Limited. The merger strengthened DBS' business position in India by adding new retail and small and medium sized customers.

Recently, UOB Group (UOB) acquired Citi’s consumer franchise in Indonesia, Malaysia, Thailand, and Vietnam, in a deal worth $3.7 billion (SGD 4.9 billion). It comprises unsecured and secured lending portfolios, wealth management and retail deposit businesses. In December 2021, UnionBank of the Philippines (UnionBank) acquired Citi’s consumer banking franchise in the Philippines for $1 billion (PHP 55 billion). The deal with Citi is expected to be completed in the second half of this year subject to regulatory approval. It includes credit card, personal loans, wealth management, and retail deposit business. The deal also includes Citi’s real estate interests in relation to Citibank Square in Eastwood, three full-service bank branches, five wealth centres, and two mini branches.