From Bloomberg Opinion, February 3:
A special economic zone across the border in Malaysia will narrow the city's gap with Hong Kong. Bankers are quick to grasp the potential
For multinationals looking to reduce their reliance on China, the top alternative locations in Asia so far have been Vietnam and Indonesia. Both economies have witnessed a boom in exports and foreign investments over the past few years. But now someone new wants to play: Singapore. To gauge the city’s seriousness, look no further than to its largest lender.
DBS Group Holdings Ltd. may want to purchase 29% of Alliance Bank Malaysia Bhd., one of the country’s smallest publicly traded banks, from its top investor. It may even consider raising the stake to 49%, Bloomberg News has reported. If the Malaysian monetary authority approves the proposal, DBS will be able to upgrade its presence, currently restricted to a branch serving corporate clients, to full-fledged banking operations.
The motivation is plain to see. The Johor-Singapore Special Economic Zone, greenlighted recently by Malaysia’s Prime Minister Anwar Ibrahim and Singapore’s Prime Minister Lawrence Wong, could shape up as “an ideal candidate” for companies attempting to diversify supply chains away from mainland China, say economists at ANZ Group Holdings Ltd. Indeed, it’s the prospect of this economic zone that may be “increasing the urgency” for DBS to gain a firmer foothold in Malaysia, analysts for CreditSights, a Fitch Group unit, note.
But why has DBS, no slouch when it comes to building franchises in China, Taiwan, Hong Kong and India, done so little in a market that’s geographically and culturally the closest to its home turf?
That answer lies in history. Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., two of the three local Singaporean banks, were established in the 1930s British Malaya. They rank among the top 10 banks in Malaysia. DBS came into being in 1968, three years after the city’s acrimonious exit from the Malaysian federation. So it faced a problem expanding in the neighboring economy — not because it didn’t want to, but because it wasn’t welcome. “The Malaysians have always said there are already two big Singapore banks over there, why do we need a third one?” Piyush Gupta, the outgoing chief executive of DBS, said on an earnings call in November. “With the current administration, there might be a bit more flexibility.”
The reason Malaysians may be rethinking their stance is that they see a once-in-a-generation chance to build an alternative to Shenzhen, a fishing village in southern China turned into an economic powerhouse in less than half a century. Hong Kong drove the success of the Shenzhen special economic zone by routing financial capital to it, a role that Singapore can reprise....
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