Banking Sector - Singapore QFB licences awarded to China banks OVERWEIGHT

- The press reported that the Monetary Authority of Singapore (MAS) had announced it will be granting two full-fledged Qualifying Full Bank (QFB) licences in the city state to two Chinese banks which MAS had not yet named.    

- The three Chinese banks operating in Singapore are  Bank of China, China Construction Bank and industrial and Commercial Bank of China. 

- Earlier on 28 June 2012, MAS announced changes to its QFB programme. MAS said then it would continue to consider awarding new QFBs only under FTA negotiations. 

- New QFBs that are granted under future FTA offers will have to first locally incorporate before they may establish up to 25 places of business.

- Thus, the two new QFB licences to be issued to China banks are considered to be awarded under the China-Singapore Free Trade Agreement pact. 

- As for Malaysian banks, so far, only Malayan Banking (Maybank) has a full QFB licence in Singapore. CIMB Group Bhd (CIMB) has a limited bank licence which allows it to operate two branches in Singapore. 

- Given the new changes announced on 28 June 2012, the implication for CIMB is that it will now be considered for a full QFB licence under FTA negotiations. 

- We expect neutral impact on CIMB, given that expectations of a full QFB licence had been muted. We maintain BUY on CIMB with an unchanged fair value of RM8.70/share. 

- The new ruling by MAS on 28 June 2012 was announced after Alliance Financial Group (AFG)’s announcement of DBS’s proposed entry as new strategic shareholder on 2 April 2012. In the announcement, AFG said it had received notice from Duxton Investments Pte Ltd (Duxton Investments), that DBS Bank Ltd (DBS) has obtained the approval of Bank Negara Malaysia (BNM) to commence discussions to acquire Duxton Investments’ 49% stake in Vertical Theme Sdn Bhd (Vertical Theme).

- With changes to the QFG programme and given that DBS’ proposed acquisition has yet to  be approved, we believe this may give rise to concerns about possible delays in DBS’ proposed acquisition of an effective 14% stake in AFG.     

- We believe AFG’s share price has rerated ahead of confirmation of the entry of DBS as a major shareholder. We maintain HOLD on AFG with an  unchanged fair value of RM4.40/share.  

Source: AmeSecurities