DBS merger deal in Indonesia seen to cement bank’s hold in SE Asia

The bank’s plan to merge BDMN with PT Bank DBS Indonesia will create the fifth largest bank in Indonesia.

According to UOB Kay Hian, Indonesia will become the third top contributor to the bank’s income—after Singapore and Hong Kong—once the deal pushes through.

The analyst, who remained optimistic about the valuations of Singapore banks, picked DBS as the market leader “due to its consistency in growing fee income and stability of treasury income.” 

It said the bank’s rollout of wealth management and small and medium-sized enterprises (SME) capabilities across the region is seen to bolster its bottom line. 

UOB Kay Hian noted that DBS’ acquisition of BDMN will reduce the bank’s reliance on the core Singapore and Hong Kong markets while at the same time diversifying its geographical business mix.

Contribution from South and Southeast Asia (mainly Indonesia and India) is expected to expand from 7% of revenue to 27% based on financial performance in 2011. 

DBS plans to expand BDMN’s existing franchise microfinance and consumer businesses and to add new capabilities in corporate banking, investment banking and treasury.

The Singapore bank reported impressive 1Q12 results with improvement in net interest margin (NIM), strong growth in fee income of 19% qoq and robust treasury income of S$325m.

While provisions have moderated sequentially after charges for legacy exposure to the shipping industry in 4Q11, loan loss coverage has improved from 126% to 127.8% as asset quality remains healthy.