Singapore unlocks bank vault

Business Asia, May 31, 1999

Singapore has fired a major salvo in the battle to become the dominant Asian financial centre by introducing a sweeping range of banking reforms this month.

The reforms, unveiled by Singapore Deputy Prime Minister and central bank head, Brigadier General Lee Hsien Loong, gives foreign banks greater access to the lucrative Singapore market and lifts the 40 per cent ceiling on foreign ownership of local banks.

Mr Lee said the reforms, which would be implemented over five years, gave Singapore banks a few years to "get their act together".

"It's a very careful shift we have to make from where we are now, which is a safe and sound position -- which is not sustainable in the long term -- to a new position of even more competition," he said.

Financial analysts have welcomed the moves and say they may deliver Singapore its goal of attaining international financial hub status over regional players such as Hong Kong and Tokyo.

Already one of the world's most open banking markets, Singapore will issue up to six new special banking licences allowing foreign bank lenders to open more branches and expand cash machine networks.

The Monetary Authority of Singapore (MAS) has also lifted the 40 per cent cap on foreign ownership of banks, effectively ending a dual share system which prevented foreign takeovers by dividing bank shares into those that can be owned by foreign investors and those that cannot.

The government, however, will retain other means of control, such as forming a Nominating Committee to vet executive appointments.

Mr Lee did not expect the lifting of the 40 per cent ceiling to create open season for foreign acquisitions of Singaporean banks.

"I don't think it is our purpose to allow foreign banks to take full control of local banks -- I will be very astonished if it comes about," he said.

However, market analysts say the reforms could lead to a spate of Singaporean and foreign bank mergers.

"They're really forcing local banks to remain relevant while making Singapore a more attractive location for other providers of financial services," Salomon Smith Barney banking analyst Mr John Doyle said.

Ms Deborah Schuler, a senior analyst at Moody's, said the MAS's measured rather than Big Bang approach to opening the banking sector may "indeed be the best to get the objectives they are seeking, which is to have at least a couple of major Singaporean players in the region".

However, she said that in the short run there was a chance of a shakeout in the industry.

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