Banks still in good shape - Singapore

Business Asia, Nov 2, 1998

Room for two financial centres

The next five years will see further liberalisation of the banking sector in Singapore as the island state combats Asia's financial crisis and prepares for the 21st Century

Singapore's successful banks have long been competitive both locally and regionally.

However, these institutions are feeling pressure because of the Asian financial crisis, the advent of full-scale international competition under World Trade Organisation rules, and the country's aspiration to become a regional financial centre.

The government embarked on its latest financial-reform program before the Asian crisis hit -- and the campaign shows no signs of turning back despite the turmoil.

Currently, the focus is on increased transparency and a lighter regulatory touch by the Monetary Authority of Singapore. The government has said liberalisation will be gradual over the next four to five years.

Mr Peter Seah Lim Huat, president and chief executive officer of the Overseas Union Bank (OUB), said local financial institutions were already well positioned to take on further liberalisation and compete internationally.

"Singapore's banks are strong and sound institutions which are well capitalised and very profitable," he said. "Over the years, they have been gearing themselves up to compete against all other banks, including the largest and most sophisticated in the world."

Indeed, Singapore has big aspirations for its banks.

Last year, the sector contributed 12 per cent of gross domestic product, and there is a prospect of substantial growth in the future.

Pointing to Switzerland, Singapore officials assert that size is no obstacle to competing as a hub in the worldwide financial arena.

In terms of competing with rival Hong Kong, Singapore hopes to shine in areas such as forex trading, fund management and the bond market.

The government wants to kick-start the bond market with the issue of seven- and 10-year government securities, while quasi-governmental agencies will raise debt financing via bonds.

The government is also considering making it easier for foreign companies to issue bonds in Singapore dollars.

"It is very clear that there is enough room in the region for at least two financial centres," said Mr Morgan McGrath, regional manager of Chase Manhattan Bank. "Singapore will be one (of them). A number of the other contenders for that number-two position have fallen by the wayside as a result of the turmoil.

"Singapore continues to provide the right infrastructure for a financial services hub to prosper."

Mr Seah said: "We are very much on track for our positioning as a financial centre. We have reviewed the market, looked at its strengths and weaknesses, and with some modifications we will have a stronger and more competitive financial centre, geared to benefit from the expected recovery."

In order to compete more effectively in the global arena, the government is encouraging mergers and acquisitions.

The largest buyout thus far occurred in July when the government-linked Development Bank of Singapore (DBS) -- the island's biggest in terms of assets -- announced a S$1.6 billion (US$954.65 million) acquisition of the state-owned Post Office Savings Bank.

The combined assets of S$93 billion now make DBS the world's 65th-largest bank -- a giant leap from its previous rank of 90th.