* RBS to transfer retail, commercial portfolios to DBS
* Deal covers only Beijing, Shanghai and Shenzhen
* Deal also involves transfer of RBS employees to DBS
* Doesn't involve cash investment, outlets, licence (Adds details, executive quote)
By Saeed Azhar and Samuel Shen
SINGAPORE/SHANGHAI, Dec 15 (Reuters) - DBS Group , Southeast Asia's biggest lender, agreed on Wednesday to take over Royal Bank of Scotland's retail and commercial businesses in three major Chinese cities, as it accelerates expansion in the world's second-biggest economy.
The agreement ends more than a year of speculation over who will acquire RBS' China assets, with rivals including HSBC Holdings Plc , Standard Chartered and Australia and New Zealand Banking Group having all been identified by media as potential buyers.
But the arrangement between RBS and DBS does not involve any cash investment, transfer of outlets or business licences.
It will give RBS' 25,000 customers in Shanghai, Beijing and Shenzhen the option to transfer their existing accounts and deposits to DBS China. Some RBS employees, as well as $900 million worth of banking products will also move over to the Singapore bank as part of the deal.
"This landmark agreement enables DBS China to rapidly expand its retail banking customer base, grow its deposit base and correspondingly, accelerate plans to grow its loan portfolio, in a market that is of critical importance to DBS," said Melvin Teo, CEO of DBS China.
"We didn't invest a single cent. RBS wants to exit, we want to accept, it's just as simple as that."
RBS Chief Executive Stephen Hester embarked on a wide-ranging asset sale programme after the bank was ordered last year by European regulators to sell a string of assets as a price for its state bailout.
RBS, 83 percent owned by the UK government, has sold most of its commercial banking units in Asia but still has an investment banking presence in the region. RBS also has banking operations in other Chinese cities.
"China is a core market for RBS," RBS said in a statement on Wednesday. "We will continue to provide services to large-scale companies and institutional clients in China."
DOUBLING STAFF
DBS plans to double its China staff to 2,000 next year and expand its China outlets to 50 by the end of 2013, Teo said, adding that he also expected the agreement with RBS would enable it to double its client base in China.
"The key here is that the transaction is in the right geography, and is part of a well articulated strategy of sourcing 30 percent of revenues from Greater China," Harsh Modi, a JPMorgan analyst said in a note to clients.
DBS CEO Piyush Gupta earlier this year announced plans to boost revenue from outside the bank's core markets Singapore and Hong Kong.
He wants South Asia and Southeast Asia, excluding Singapore, to account for 30 percent of revenue in five years, with the same coming from Greater China. Singapore's share will drop to 40 percent from 60 percent in the same period.
"We expect DBS to differentiate itself from the past on two aspects: good execution of plans and passing over costly M&A deals," said JPMorgan's Modi.
"Hence, we believe DBS could shape up as one of the biggest turnarounds amongst Asian banks in 2011."
DBS, which trades at 1.3 times book, trails rivals Oversea-Chinese Banking Corp , which trades at 1.9 times book, and United Overseas Bank's around 1.7 times.
DBS shares ended down 0.9 percent on Wednesday, in line with the broader Singapore market's decline. (Editing by Muralikumar Anantharaman)