S'pore banks ready for competition

S'pore banks ready for competition

Martin Abbugao, Agence France-Presse/Singapore

Singapore banks say they are prepared for increased domestic competition from the big boys of global finance even as they look to expand overseas to sustain future growth.

A consolidation over recent years that has seen the number of homegrown banks shrink to three major players from the original seven smaller entities has strengthened and prepared the sector for the entry of major foreign lenders, they say.

Their defiant comments come after the Monetary Authority of Singapore, the city-state's central bank, last week announced the third installment of banking sector liberalization measures initiated in 1999.

From January 2005, six foreign banks with qualifying full banking licenses will be allowed to set up as many as 25 branches or cash machines, up from 15 currently.

With immediate effect, these banks -- ABN AMRO, BNP Paribas, Citibank, Standard Chartered Bank, Hong Kong and Shanghai Banking Corp. and Malayan Banking Bhd. -- can negotiate with Singapore lenders to allow their credit card holders to obtain cash advances through the local banks' ATMs.

Top Singapore lender DBS Group has 792 ATMs island-wide, while United Overseas Bank and Oversea-Chinese Banking Corp. have a combined network of more than 700 cash machines -- giving them an edge over foreign banks which have much fewer outlets.

Bank stocks fell on Friday in a knee-jerk reaction to the announcement.

However, bank executives declared they were ready for the competition, which they said would bring vibrancy to Singapore's ambitions to become a key Asian financial hub.

"The local banks have actually invested an awful lot in people and resources. The local banks are now very competitive with local and international banks," DBS Group chief executive Jackson Tai said.

Oversea-Chinese Banking Corp. spokesman Peter Zheng said local players "are well positioned to compete effectively with new and existing foreign entrants as each would have its unique strengths and niches."

United Overseas Bank president Wee Ee Chong said: "We have to compete. To be a financial center, it's the only way to go."

The increased competition in the local sector is one of two major new business challenges the three Singapore banks face.

Deputy Prime Minister Lee Hsien Loong warned on Thursday that Singapore banks remained small by international standards and needed to look beyond the small domestic market for more growth.

"Possibilities for domestic growth are limited other than through further consolidation," said Lee, who is also the finance minister, in a speech to the city-state's financial elite.

"But the region offers considerable opportunities. Asia is poised for sustained growth, having emerged from the (Asian financial) crisis as one of the most promising regions in the world."

Singapore banks have recently stamped their footprints in selected Southeast Asian markets as well as in Hong Kong, which is seen as a gateway to the Greater China region.

But despite towering over their peers in Southeast Asia, their size is nowhere near that of the Japanese banking giants, for example.

Lee said Asian countries are now progressively opening up their economies to major regional and global players after putting in place structural reforms and transforming their financial sectors.

"Our local banks cannot ignore this game. They need to consider their options carefully.... Their long-term profitability and viability depends on their finding the right answers," he said.

"Competition will intensify, within the domestic market because of liberalization, and internationally because globalization is continuing. The local banks may well find that in order to hold their own and be viable they need to grow bigger."