S'pore moves in right direction with bank reforms

S'pore moves in right direction with bank reforms

By Valerie Lee

SINGAPORE (Reuters): Sweeping banking reforms, aimed at revving up growth in Singapore's financial sector and putting it on the fast track to international financial hub status, are a plus for its ambitions, analysts said on Tuesday.

"Singapore is capitalizing on the fact that while many economies are tightening, financial liberalization (in the city- state) is moving in the other direction," said Jimmy Koh, regional economist IDEAglobal.com said.

On Monday, the Monetary Authority of Singapore (MAS) said it would launch a package of measures aimed at freeing up the country's domestic banking sector.

The MAS measures included the introduction of a new grade of licenses for foreign banks that would give them greater access to the local market as well as the removal of a 40 percent ceiling on the foreign ownership of local banks.

"Clearly with liberalization there should be more active players in the market," said Terry Chan, director, financial institutions rating with Standard and Poor's.

"In that sense it will be attractive for corporates and also multi-nationals to tap funds in Singapore whether directly from the banks or through issuing papers," he said.

Deborah Schuler, Moody's vice-president and senior analyst, financial institutions group, said the MAS' 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."

Singapore's four major banks are DBS Bank, OCBC Bank, United Overseas Bank and Overseas Union Bank.

The central bank had phased its bank reform package over a period of five years, saying it would review the progress made after three years before deciding on further liberalization.

Singapore Deputy Prime Minister Lee Hsien Loong, who also heads the central bank, had said at the release of the reforms that local banks had a few years to "get their act" together.

"What we have seen everywhere in the world...is that liberalization and deregulation gives you, in the end, stronger banking systems made up of stronger banks," Moody's Schuler said.

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

The MAS, which has set its sights on turning Singapore into a debt origination and trading center, also took the right steps in hiking the lending limits of offshore banks, analysts said.

"This raises the issue of large-scale borrowing of onshore Singapore dollars (SGD) by offshore players that would make the SGD a funding currency, to sit alongside the Swiss franc (CHF) and the Japanese yen (JPY)," said Barclays Capital in a Tuesday report on the measures.

Barclays research head Desmond Supple said the use of the SGD as a funding currency would be attractive as it was a traditionally low-yielding currency due to MAS record of price stability and its robust balance of payments situation.

Over the past year, a slate of supranational, foreign corporates and local statutory boards have issued a series of SGD denominated bonds but others have held off due partially to illiquidity in SGD swaps market.

Analysts said the reform measures were key to the tiny island- state's continued survival in competitive Asia.

"We are depending on manufacturing as the first engine of growth and trying very hard to develop the second pillar," said Koh of IDEA.

"The fall-off in manufacturing has to be augmented elsewhere...we can't go to retail, commerce depends on what happens elsewhere in the region, so the other engine of growth will have to be the financial sector."