Keppel Tat Lee is Singapore's fifth-biggest bank. It was established last year following a merger between Keppel Bank and Tat Lee Bank and has been seeking an international alliance for some time.

It is understood to have talked to a number of banks about taking an equity stake in its banking operations but seems to have decided to opt for an alliance with AIB.

The alliance would mark the beginning of the entry of foreign players into Singapore's domestic banking market. It will offer AIB exposure to any sustained economic upturn in the region and will put Keppel Tat Lee in a firmer position to cope with increased competition. AIB has tended to enter new markets by buying strategic interests in established banking groups and gradually expanding from that base. As the first foreign bank to make such an investment in Singapore's banking sector for over 30 years, the bank has managed to get a foothold there ahead of its rivals. Economic forecasts for the troubled region are growing increasingly favourable with many analyst predicting that its financial woes are over. If this proves to be correct, AIB will be in position to yield the maximum benefit from any economic upturn.

Given the troubles that beset banks in the Asia Pacific region, Keppel Tat Lee is itself recovering. Like its competitors it was forced to make massive provisions against its loan book to guard against widescale debt write-offs due to devaluation of the local currencies. Its shares rose yesterday on news of the impending alliance, but some analysts suggest AIB will probably be able to secure its 25 per cent stake at a relatively good price.