DBS is acquiring Citi’s consumer banking franchise in Taiwan, a development that will  accelerate the Singapore-based bank’s business growth in that market by 10 years. DBS will pay cash for the net assets of Citi Consumer Taiwan plus a premium of S$956 million or NT$19.8 billion (US$706.6 million).

“I am very delighted. I have known Citi Taiwan personally for the last 15 years to 20 years,” shares Piyush Gupta, CEO, DBS Group, who was with Citi for 25 years until he took the helm of the Singapore bank in 2009. “I have a lot of respect for the leadership team over the years for the quality of the franchise they have built. To be able to integrate that to DBS has been frankly for me really delightful thing to have come to past.”

Although the Taiwan market may be regarded as competitive, Gupta points out that there are exceptionally good sectors. "In the core markets that we operate, it has the largest number of wealthy people (ex-China) – over 500,000 high net worth individuals, which is much larger than the number in Hong Kong or Singapore."

Following the integration with Citi Taiwan, Gupta expects DBS Taiwan to become a meaningful contributor to the group. “Topline, Citi Taiwan makes S$900 million in a normalized interest-rate environment. We make another S$400 million to S$500 million,” explains Gupta at a press briefing.

“Suddenly Taiwan becomes a S$1.5 billion revenue market. And it becomes a S$400 million to S$500 million bottom-line market,” he continues. “The ROE (return-on-equity) on a blended basis will be way ahead of our cost of capital. Taiwan becomes a very material player for the DBS franchise.”

Citi Consumer Taiwan has been operating in Taiwan since 1985, and currently has 2.7 million credit cards and unsecured accounts, 0.5 million deposit and wealth customers, and 45 branches. 

As of September 30 2021, it had an earning asset base of S$20.3 billion (NT$421.9 billion) and total deposits of S$15.1 billion (NT$314.0 billion), of which more than 70% are sticky low-cost deposits. 

Citi Consumer Taiwan has approximately 3,500 employees, and DBS intends to make offers of employment to all of them. 

Strategic rationale 

DBS Taiwan has been operating in Taiwan since 1983 and became a locally incorporated subsidiary in 2012. It has 35 branches and provides institutional, SME and consumer banking. With the combination, DBS Taiwan will boost its credit cards and unsecured loans by 4.7 times to S$5 billion. It also becomes the largest foreign wealth manager with assets under management growing by 3.5 times to S$13 billion.

In addition, DBS Taiwan adds a sizeable loan porfolio consisting of consumer and institional banking growing by 1.5 times to S$35 billion. CASA (current account and savings account) meanwhile improves from 39% to 53% expanding by 1.8 times to S$33 billion.

Two-thirds of DBS Taiwan’s corporate loan book is serving the TMT sector, which is the fastest growing especially over the past two years. With the acquisition, Gupta points out that the deposit book almost matches the loan book. "Today, DBS Taiwan is underfunded. Therefore, We have to go to the markets to borrow. With the new acquisition, we can pretty much self-fund."

Citi Consumer Taiwan is widely considered to be the best foreign consumer bank in Taiwan, generating annual net profit of S$250 million on average, or a return on equity above 20%, in the two years before Covid-19. The acquisition is expected to be accretive to earnings and return on equity immediately after completion. 

“Notwithstanding Covid-19, we believe that Asia’s long-term growth trends remain intact," Gupta maintains. "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. This acquisition is no exception.” 

“Citi Consumer Taiwan is highly complementary to us given its high-quality wealth management business as well as huge credit card customer base with a high activation rate and spending level," Lim Him Chuan, general manager, DBS Taiwan, points out. "We believe that with this proposed acquisition, we will create synergy and further provide best-in-class consumer banking products and services to customers, leveraging DBS’ digital strengths.” 

“We are very pleased to announce this transaction with DBS," notes Peter Babej, Citi Asia Pacific CEO. "We are confident will provide our customers and employees with excellent opportunities. For Citi, this transaction will enable additional investment in our strategic focus areas, including our institutional businesses in Taiwan, which remains a priority market for our firm.” 

Capital impact 

The acquisition is expected to have a 0.7% impact to DBS Group’s capital ratio based on S$2.2 billion (NT$44.3 billion) capital injection into DBS Taiwan for the premium of S$956 million (NTD 19.8 billion) to be paid to Citi and S$1.2 billion (NT$24.5 billion) capital to support incremental risk-weighted assets and capital needs. This represents 1.8x P/B (price-to-book) and 9x P/E (price-earnings, based on pre-Covid average). The acquisition will be funded by excess capital, with no impact on DBS’ ability to pay dividends. 

Integration track record 

Completion of the proposed acquisition is subject to customary regulatory and migration conditions. Subject to the timing of satisfying these conditions, completion and full integration is anticipated in the middle of 2023. Citi will continue to operate Citi Consumer Taiwan until completion, with no immediate changes in the way it serves its customers. 

Morgan Stanley is acting as financial adviser to DBS in the proposed acquisition. Citi's Banking, Capital Markets and Advisory Group is representing Citi.