Singapore's efforts to establish itself as a premier gold trading center are picking up pace, propelled by DBS Group Holdings Ltd. increasing its vault capacity while peer lenders explore similar expansions.

DBS, the largest bank in Southeast Asia, has expanded its warehouse space this year to cater to rising demand from its private wealth division and institutional clients, according to an emailed response to Bloomberg on Wednesday. In parallel, Oversea-Chinese Banking Corp. Ltd. has initiated talks with providers of precious metal storage to procure additional room, according to sources familiar with the discussions.

Deutsche Bank AG is likewise weighing an expansion, a separate source indicated. The extent of vault enlargement at these banks remains under deliberation and plans could shift, the sources noted, requesting anonymity as the talks are confidential.

Typically, banks engage logistics firms to handle bullion storage and transport, although certain institutions, such as Singapore's own United Overseas Bank Ltd., manage in-house vault facilities. Third-party operators lease areas within private strongholds like Le Freeport, a highly secure site in Singapore often described as "Asia's Fort Knox," which counts a crypto billionaire among its stakeholders.

Le Freeport has observed surging interest in gold storage in recent years, with its underground vault nearly at full occupancy, as stated by the operator in a May interview. According to informed individuals, some banks might not secure space in the basement, their favored option due to its superior security and stronger floor load limits, allowing for denser bar stacking than upper-level storage.

A Deutsche Bank representative declined to comment, while an OCBC spokesperson conveyed that the bank experienced "steady interest" following its foray into physical gold services, particularly from private banking customers.

Expanding vault capacity is vital for Singapore's objective of establishing a gold clearing system, a cornerstone of its bid to become a worldwide hub for the commodity. All designated clearing banks must possess adequate storage to handle and settle significant bullion volumes.

This ambition places the city-state in direct competition with regional rival Hong Kong, which initiated a pilot of its own clearing framework in July while attracting foreign banks to stockpile gold within its borders.

At present, Singapore's private facilities can house at least 2,200 tons of bullion, comprising 1,700 tons at Le Freeport and 500 tons at The Reserve, based on operator data. Hong Kong, for its part, has committed to boosting total storage to 2,000 tons over the next three years.