DBS Dials Down Alliance Bank Bid to 30% to Align With Malaysian Rules

Singapore's largest bank, DBS Group Holdings Ltd., is reportedly revising its proposal to acquire a stake in Alliance Bank Malaysia Bhd., downgrading its initial bid from up to 49% to a 30% interest. The move follows a rejection by the Malaysian central bank, which typically limits foreign ownership in local financial institutions to 30% without a special waiver. By aligning with regulatory norms, DBS aims to streamline its bid and gain approval from Bank Negara Malaysia.

The revised proposal positions DBS to negotiate with Vertical Theme Sdn., Alliance Bank's largest shareholder and a Malaysian holding company backed by Singapore's Temasek Holdings Pte. Temasek already holds a 49% stake in Vertical Theme through Duxton Investment & Development Pte and a 28.3% stake in DBS. This connection could facilitate smoother negotiations, as it aligns with broader cross-border investment interests between the two nations.

DBS's pivot to a 30% stake strategy could also signal a more cautious approach to navigating regulatory hurdles.

The initial attempt to acquire 49% would have required a regulatory exception, a process that ultimately failed. The revised proposal avoids that roadblock, making it more likely to be accepted by the central bank.

Implications for the Malaysian Banking Sector

A DBS investment would mark a significant expansion into Malaysia, where the bank's Singaporean competitors, including Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., already have a strong presence. With a 30% stake in Alliance Bank, DBS could strengthen its foothold in the Southeast Asian market and enhance its cross-border financial services. Alliance Bank, in turn, may benefit from DBS's operational expertise and global financial network.

The Malaysian central bank has not yet responded to the revised application, and Alliance Bank has stated it is unaware of the developments. Meanwhile, DBS and Vertical Theme have both declined to comment. This silence suggests the matter is still under internal review or negotiation, with further details likely to emerge in the coming weeks.

What This Means for Investors

Alliance Bank's stock has fallen 6% in Kuala Lumpur this year, underperforming the broader market. A stake acquisition by DBS could inject renewed confidence in the bank and potentially stabilize its share price. The bank currently has a market capitalization of about 7.7 billion ringgit ($1.9 billion).

For DBS, the move aligns with its broader strategy to expand its regional presence. As Southeast Asia's largest bank by total assets, DBS has been exploring strategic partnerships and acquisitions to solidify its market position. A successful stake acquisition in Alliance Bank would add another key asset to its regional portfolio.

Regulatory and Strategic Considerations

The Malaysian central bank's decision will hinge on its assessment of DBS's strategic fit and the broader economic implications of the proposed stake. While the 30% cap on foreign ownership is standard, exceptions are rare and typically reserved for exceptional circumstances. By submitting a revised proposal, DBS is demonstrating its willingness to comply with local regulations and adapt its strategy accordingly.

The involvement of Temasek, a major Singaporean state investor, adds another layer of strategic significance to the deal. Temasek's stake in Vertical Theme suggests that the investment could be backed by strong financial and political support, which could help smooth regulatory discussions.

If approved, the deal could set a precedent for future cross-border banking collaborations in the region. It also highlights the importance of aligning with local regulatory frameworks, especially in markets where foreign ownership is tightly controlled.