Hurdles in DBS’ Alliance Bank bid

DBS Bank Ltd’s planned entry into Alliance Bank Malaysia Bhd may be facing a challenge to secure approvals from the authorities for the stake sought by the Singaporean bank.

Recall that DBS is said to be interested in acquiring the 29.06% stake held by Vertical Theme Sdn Bhd in Alliance Bank.

Singapore’s Temasek Holdings Pte Ltd, which is also DBS’ largest shareholder, owns 49% of Vertical Theme.

The remaining 51% belongs to Langkah Bahagia Sdn Bhd, a private company owned by three Malaysians – hotel and property tycoon Ong Beng Seng, RRJ Capital founder Ong Tiong Sing, and corporate adviser Seow Lun Hoo.

However, sources say that DBS has so far only secured approval to acquire Temasek’s indirect stake in Alliance Bank, amounting to an effective ownership of 14.24%.

According to sources, the Malaysian authorities have indicated that the stakes of the three Malaysian individuals in Langkah Bahagia can only be sold to a local party.

DBS has not yet pursued partnering with a local party to acquire these stakes and is still seeking approval to buy the block directly.

However, no approval has been granted so far, resulting in a standstill on the deal, according to sources.

In a reply to StarBiz 7 queries, Bank Negara Malaysia (BNM) says that as a matter of policy, it does not comment on specific applications on acquisition or disposal of interest in shares of local regulated entities.

“Applications concerning the shareholding of licensed banks, including those submitted by foreign entities, are assessed in accordance with the relevant provisions under the Financial Services Act 2013 (FSA) and the Islamic Financial Services Act 2013 (IFSA).

“In line with these laws, BNM will give due consideration to all factors under Schedule 6 of either the FSA and IFSA, with particular attention to the prudential and best interest of Malaysia criteria.”

A banker notes that an indirect 14.24% stake would offer limited strategic upside for DBS in entering Alliance Bank.

It is no secret that DBS has long sought to expand into regional markets such as Malaysia. Valued at S$165.6bil (RM520bil), the bank has built a competitive edge through early and sustained investment in digital infrastructure.

DBS has tried several times over the years to enter Indonesia, underscoring its ambition to deepen its presence in South-East Asia. These efforts, however, were unsuccessful due to regulatory constraints.

The bank aims to expand its wealth management business, driven by growing demand from high-net-worth clients in the region, which offers additional growth potential.

“Malaysia is attracting strong foreign direct investment, and local investors are increasingly looking to expand cross-border, making the country an attractive growth hub,” adds the banker.

“Politically, the country remains stable enough to support long-term investments, even amid ongoing political developments.”

The Malaysian banking scene is busy, dominated by major domestic players like Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd, and Public Bank Bhd, which already serve the local market effectively.

DBS’ entry might also channel some funds from Malaysia to its headquarters in Singapore, given the group’s advanced technology platform that will be available to users here.

In the broader context, DBS’ potential entry is viewed in relation to the Johor-Singapore Special Economic Zone (JS-SEZ), where Singaporean and Malaysian authorities are coordinating cross-border economic initiatives.

Both governments are still finalising the details of agreements related to the JS-SEZ.

A banking executive suggests that one reason for the lack of significant investment decisions by large Singaporean companies in the JS-SEZ may be DBS’ absence from the Malaysian market.

There is always the possibility of DBS teaming up with a Malaysian party to acquire the remaining 51% stake in Vertical Theme held by Langkah Bahagia.

“Any local buyer would need deep pockets to take on a block of this size, even a 5% stake requires significant capital commitment,” notes the banking executive.

Based on Alliance Bank’s market cap of RM9.57bil, Vertical Theme’s block is valued at RM2.8bil.

Under current regulations, there is no prescribed limit on shareholding by a single entity, except for the individual ownership cap of 10%.

However, bankers indicate that BNM applies a guideline of approximately 30% for foreign shareholding in commercial banks. Besides Vertical Theme, the Employees Provident Fund holds a 4.47% stake in Alliance Bank, as shown in stock exchange filings.

The bank, Malaysia’s smallest by assets, also has several foreign institutional investors as shareholders, though each holds less than 5%.

A former banker says that a stake of roughly 14% is “financially feasible, but it offers little strategic value”.

If the market speculation that BNM considers the three Malaysian individuals’ stake as necessitating a sale to a local party is accurate, he suggests this indicates prudential and sovereignty concerns.

This is not unlike many other jurisdictions where banks are viewed as strategic assets and ownership rules are closely guarded.

“But not all capital is suitable to hold a bank, making the pool of domestic investors limited.

“Investors must be credible, fit-and-proper, and willing to oversee a regulated, capital-intensive institution through economic cycles,” explains the former banker.

Concerns about DBS’ potential entry are understandable given Malaysia’s crowded banking landscape, resulting in compressed margins, while digital investment requirements are rising.

DBS’ smaller Singapore peers UOB and OCBC already have operations in Malaysia.

By contrast, among Malaysian banks in Singapore, only Maybank has been granted a full qualifying licence, giving it near-domestic operating rights.

However, the former banker believes protectionism alone seldom improves industries.

Citing JP Morgan’s evolution, the former banker notes how banks can strengthen their relvance by investing in robust infrastructure and strategic capabilities, even after facing crises.

“Asean banking is competitive, and some Western players, such as Citibank, have pulled back due to over-competition.”

By contrast, regional players with strategic ties, particularly from Singapore and China, are increasingly active,” he adds.

He notes that DBS appears to be advancing along a similar vector as JP Morgan, but in Asia rather than globally.

“Ultimately, the question isn’t just who owns Alliance Bank, but how that ownership translates into strategic value, which is a key consideration for regulators balancing stability with competitiveness.”