[SINGAPORE] A potential acquisition of Indonesia’s Panin Bank could benefit from DBS’ strong track record of turning around unprofitable targets, and is a good place for South-east Asia’s biggest bank to park its surplus capital.
Citi research analyst Tan Yong Hong cited DBS’ 2020 acquisition of India’s Lakshmi Vilas Bank as an example. The bank was merged into DBS Bank India following the purchase.
He noted that a Panin acquisition could offer scale and earnings diversification for DBS, adding that Panin’s branch network could lower funding costs, expand consumer lending, and boost DBS’ loans market share to a top 10 position in Indonesia.
The analyst’s comments follow a Mar 26 report citing sources that DBS is the frontrunner to buy the bank, edging out CIMB.
Analysts also noted that Panin is a good way for DBS to apply its excess funds.
“We maintain our view that DBS has the financial and capital capacity to acquire Panin Bank without compromising its capital return plan,” Jefferies equity analysts Sam Wong and Chen Shujin said in a report on Tuesday (Apr 1).
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Panin Bank – Indonesia’s 12th largest lender – has seen its share price fall 17 per cent since December, bringing its current market capitalisation to about 39 trillion rupiah (S$3.2 billion). An 86 per cent controlling stake currently held by ANZ (39.22 per cent) and the Gunawan family (46.52 per cent) would cost about S$2.8 billion, Jefferies estimated.
The sum could be funded using one to two years of surplus capital generation, the analysts wrote, pointing to the S$1 billion to S$2 billion in surplus capital that DBS could generate each year between 2025 and 2027. Citi’s Tan estimated that DBS could generate about S$5 billion in excess capital over the same period, based on a Common Equity Tier-1 ratio of 13.5 per cent.
While Panin Bank has a single-digit return on equity of 6 per cent, Tan wrote that DBS has a strong track record of turning around loss-making acquisitions.
It has a physical network of more than 500 branches and over 800 ATMs that will complement DBS’ Indonesia digibank through its “phygital” strategy.
Neither DBS nor Panin Bank has commented on the matter.
Jefferies maintained a “buy” call on DBS shares, with a target price of S$52. The stock closed at S$46.11 on Tuesday, down S$0.36 or 0.8 per cent.
