Region's largest deal in doubt

The largest banking deal in Southeast Asia, between Singapore’s DBS Bank and Indonesia’s PT Bank Danamon Tbk, is said to be hanging in the balance.

In the wake of a lower stake approval for Bank Danamon by the Indonesian central bank at 40 per cent, DBS has extended the agreement with Singapore state investor Temasek Holdings Pte Ltd to buy its controlling 67.4 per cent stake in Bank Danamon by another two months.

“At 40 per cent, the economics will be challenging as it will not allow us to integrate with our existing business in Indonesia,” DBS chairman Peter Seah told Singapore's Business Times.

In its tradition of wanting the best, Singapore has been known to exercise patience and woo high net-worth individuals with attractive packages.

In this case, it is obvious DBS wants the higher or controlling stake in Bank Danamon.

Without a controlling stake, the Singapore lender will have difficulty integrating Bank Danamon with its existing business in Indonesia, says Reuters.

“A 40 per cent stake also means it will have to deduct between 100 and 150 basis points from its regulatory core capital under Basel III, which is seen as punitive for banks owning minority stakes,” adds Reuters. “Temasek, meanwhile, wants to swap its 67.4 per cent stake in Indonesia’s sixth-biggest bank for more shares in DBS, giving it indirect exposure to the rapidly growing Indonesian banking sector through DBS.”

Indonesia, on its part, wants reciprocity, which analysts interpret as full banking licences.

This would allow foreign banks to open several branches in Singapore and accept retail deposits. Whether approval of that level can be given out in two months is a big question.

Pricing will be affected for the deal that is currently tagged at US$7.2 billion (Bt222.8 billion).

There seems no point in going in without a controlling stake, as that could place DBS in a weak position with regards to its expansion plans.