DEVELOPMENT BANK OF SINGAPORE: A major regional player in the banking industry began life as a one-country development vehicle only thirty years ago.

A bank founded with the prime goal of helping Singapore's economic development is expanding its role throughout Southeast Asia.

‘Thai Danu is one of the best banks in Thailand in terms of asset quality and, with our backing, it will become more innovative in terms of customer products’
NG KEE CHOE
DBS president

The Development Bank of Singapore, which has more modest origins than many other banks in the region, sees the recession as the right time to spread its wings.

Its acquisitions began with a small stake in Thai Danu Bank, in which it later became the
majority shareholder, 85% in Pt Mitsubishi Buana Bank in Indonesia, 60% in the Bank of
Southeast Asia in the Philippines, and the purchase of the Post Office Savings Bank of Singapore for an estimated S$941 million.

With these acquisitions and more planned soon, DBS is set to achieve its goal of being the premier bank in Southeast Asia.

DBS was incorporated in 1968 with the primary role of providing equity and long-term finance for manufacturing and processing industries that would lay the foundation for the economic development of the fledgling republic.

Responding to the changing needs of businesses, the bank became a fully commercial operation in the 1970s, opening its first overseas branch in Tokyo in 1977. Today it has 18 overseas offices in 13 countries and 970 branches across 80 countries.

It leads bank ratings within Asean and is among the top 1 00 in the world. It has a rating of 'AA' from Standard & Poor's and 'Aa2' by Moody's, and boasts a capital-to-lendilig ratio of 15.6%, well above the international requirement of 8.5%.

DBS entered Thailand in 1989 when it acquired 3 % of Thai Danu Bank. It lifted the stake to 50.27% last December by paying six billion baht for almost 268 million new shares, making Thai Danu the first bank in Thailand to be majority-owned by foreigners.

"We foresaw the problems and decided to take the step, although it was a very nationalistic issue at that point," said Thai Danu president Pornsanong Tuchinda.

Bankers applauded the deal because of its timing. At that point, Thailand's economic troubles were mounting and experts could not predict the future with any certainty.

The main reason for the takeover was simple: DBS, which is 40% owned by the Singaporean government wanted to enter Thailand in rime to ensure it could prevent its good assets from turning bad.

"The 50.27% stake in Thai Danu was part of the drive to become a regional player with a global reach," said DBS president Ng Kee Choe. The deal benefited both sides as DBS wanted to expand and Thai Danu was looking for a strong partner for support during bad times.

Mr Ng said he wanted to make Thai Danu one of the strongest banks in Thailand, as the quality of its assets was among the best. The priority was to consolidate and strengthen Thai Danu, transforming it from a middle-ranking player to one that could compete with large local and foreign banks.

"Thai Danu is one of the best banks in Thailand in terms of asset quality and, with our backing, it will become more innovative in terms of customer products.\

'DBS's investment in Thailand is a long-term strategy. Thai Danu will form an integral part of the DBS regional network. We intend to build it into a first-class universal bank replicating what we have done successfully with DBS in Singapore," he said.

Through Thai Danu, DBS bought 99.9% of Sri Dhana Securities for an estimated 252 million baht (14.4 baht per share).

This takes Thai Danu closer to offering universal banking services, in other words all types of services such as stock brokering and investment banking, along with commercial banking.

Mr Pornsanong said his bank was grateful to DBS for increasing its stake and thereby ensuring Thai Danu's survival.

"DBS not only owns us, but also has the hearts of the people at Thai Danu as all the employees know it was because of them that Thai Danu survived.... It is no longer a question of survival for us, but how to be a leading player when we get out of this mess."

DBS has supplied expertise in the automation of Thai Danu's treasury and deposit systems, and is assisting in an overhaul of work processes.

Thai Danu was now using the international basis for calculating loan arrears, three months without payment, and therefore its percentage of non-performing loans might look bigger than those of other banks still using the six-month rule.

Although Thai Danu's deposit base had not eroded, the bank was very cautious in the current climate and did not intend to increase lending until the economy and financial picture stabilised.

If the situation worsened, Thai Danu was willing to raise more capital. Mr Pornsanong said DBS would be more than willing to increase its shareholding.

"I don't see any reason for them for not to put money into Thai Danu. They know Thailand will recover in the end. They are long-term investors and want to expand into Thailand."

Mr Pornsanong said Thai Danu had sought DBS as a partner because they had known each other since 1989 and were partners with joint subsidiaries.

Mr Ng brushes aside suggestions that Thai Danu's overdue loans will rise to 40% of its total lending and that this will have a major impact on total earnings of DBS.

He said DBS had already written down the net tangible asset value of Thai Danu to 10 baht per share.

"The loss of 5.04 billion baht reported by Thai Danu for the first half of 1998, which brings its net tangible asset level to 19.2 baht per share, has therefore no impact on the DBS Group's results."

The acquisition of Thai Danu should not be evaluated in terms of short-term fluctuations, he said.

Thai Danu, which has an asset base of 137 billion baht, a loan-loss provision of 8.5 billion baht and a capital-to-lending ratio of 12.5%, plans to sit tight and be short-term wise in managing cash in a bid to restore its ailing loans.

According to Mr Pomsanong, Thai Danu is willing to look at all possibilities to ensure good standing: a new share issue, management changes or even a new name if that would help lift confidence.

Development Bank of Singapore
Established in Thailand: March 1992
Subsidiaries: Thai Danu Bank, DBS-TDB Securities
Number of employees: 2,911 (including subsidiaries)
Assets at end-1997: 130.26 billion baht (Thai Danu Bank)
1997 gross revenue: 16.91 billion baht (TDB)
1997 net profit: 28 million baht (TDB)

Worldwide
Headquarters: Singapore
Number of countries: 13
Number of employees: 3,858 (excluding subsidiaries)
1997 gross revenue: S$1.51 billion
1997 net profit: S$436.4 million