DBS gets regulatory nod to set up JV securities firm in China

Singapore

CHINA'S renewed push to open up its financial sector has cracked the door open further for DBS.

DBS Group has received the green light from the China Securities Regulatory Commission (CSRC) to establish a joint venture (JV) securities company, in which DBS will have a controlling stake of 51 per cent.

Known as DBS Securities (China), the JV company will provide onshore products and services for both domestic and international customers, forming an "important" part of DBS's strategy in China, according to a press statement from Singapore's largest bank.

With this regulatory nod, DBS joins the ranks of a few other non-Chinese institutions such as Goldman Sachs, HSBC, UBS Group, Nomura Holdings and JPMorgan Chase & Co.

Businesses that DBS Securities will engage in include brokerage, securities investment consulting, securities underwriting and sponsorship, as well as proprietary trading.

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It has a registered capital of 1.5 billion yuan (S$298.9 million), and shareholders include Donghao Lansheng Investment Management with a stake of about 24.7 per cent, followed by Shanghai Huangpu Investment holding about 13.3 per cent. The other two shareholders are Shanghai Huiyang Asset Management at 6.5 per cent and Shanghai Huangpu Guidance Fund Equity Investment Co at 4.5 per cent.

This comes as China takes steps to give foreign financial firms more access to the world's second-largest economy, with China committing to open up its US$45 trillion financial markets. This reform of the industry aims to increase competition as well as to address US criticism of perceived unfair trading practices.

Earlier this year, China lifted caps on the ratio of foreign shareholding in securities and fund management firms, enabling them to set up wholly-owned units on the mainland in a move to further open up the financial industry.

DBS chief executive officer Piyush Gupta said that the group has been "supporting China's financial development in the past 30 years". "The ability to set up a securities company in China represents yet another key milestone, enabling us to make available the best of DBS's capabilities and offerings, and provide customers in China with a full range of onshore and offshore financial services," he added.

Neil Ge, China head of DBS Group, said the new JV will further support the bank's long-term sustainable development in China and provide more comprehensive financial services to Chinese customers.

Analysts noted that this move will likely drive DBS' topline, but said that it is still early days to project on profitability amid the stiff local competition and uncertain economic climate.

Thilan Wickramasinghe, analyst at Maybank Kim Eng said that it is a positive development as it gives DBS access to China's vast domestic market, even though it is too soon to say how big a contribution this JV will make to the bank. "They (DBS) have a strong wealth management and brokerage platform so this may allow new synergies and opportunities for clients," he said. "It should also allow DBS to tap in to domestic investment banking deals and transactions." "Of course, a number of other international banks also have these licences, so DBS will need to have a clear strategy to manage competition and deliver growth," added Mr Wickramasinghe. With economic indicators pointing to improving conditions in China, Covid-19 is unlikely to impact implementation, he noted.

Similarly, Jefferies analyst Krishna Guha concurred that the move will help the group earn fees within investment banking and contribute to its topline, but said that the overall profitability and costs incurred for the JV are still unclear. Greater China, including Hong Kong, contributed 30 per cent of net profit for the group for the first half of 2020.

DBS Bank opened its first representative office in Beijing in 1993 and was the first Singapore bank to incorporate in China in May 2007.

According to the banking group's website, DBS China has about 12 branches and 23 sub-branches, and has more than doubled its staff strength to over 1,900. Its business focuses are on institutional banking, global transaction services, treasury and markets, SME (small and medium enterprise) banking as well as consumer banking targeting the affluent segments. DBS shares closed flat at S$20.87 on Wednesday.