S'pore tussles with issue of ringgit-based assets

S'pore tussles with issue of ringgit-based assets

SINGAPORE (Dow Jones): Singapore banks -- fresh from converting ringgit-denominated deposits to U.S. dollars -- must now grapple with the asset side of the balance sheet, bank analysts said.

"They squared off their ringgit-denominated current and fixed- deposit accounts. They must now deal with ringgit-based assets, such as outstanding loans payable," said a banking analyst at a U.S. investment house.

Banks generally used the depositors' ringgit accounts for loans to customers living in or doing business in Malaysia, analysts said.

"These borrowers may be perfectly within their rights to say they don't want to convert to U.S. dollars," said one banking analyst, when asked if Singapore banks may unilaterally decide that ringgit loans must be converted to U.S. dollars, just as the deposits have been.

"The situation may not be dire for Singapore banks, given the strength of the U.S. dollar and the favorable fixed exchange rate with the ringgit," he said.

Last week, Bank Negara, Malaysia's central bank, fixed the ringgit at 3.80 to the U.S. dollar. But in converting Singapore- based ringgit deposits, the Association of Banks in Singapore recommended and banks used 4.00 ringgits to the U.S. dollar.

"There is also the positive hope that local lending by subsidiaries in Malaysia could be offset by local ringgit deposits," said Alastair Macdonald, a Bangkok-based regional bank analyst with Paribas Asia Equity. "The problems might come when Singapore banks attempt to repatriate any profits generated by those loans."

Singapore banks only began announcing regional loan exposures at the end of 1997, making it difficult to chart the trend in regional exposure, although before the crisis domestic companies had been encouraged by the government to expand regionally.

But for the first six months of 1998, Singapore's Big Four banks reported, along with their earnings, their exposure to the five Asian countries worst hit by the crisis: Malaysia, Indonesia, South Korea, Thailand and the Philippines.

Net exposure in relations to the banks' total assets was Development Bank of Singapore, 1.4 percent; Oversea-Chinese Banking Corp Ltd., 14.3 percent; United Overseas Banking Corp, 7.6 percent; and Overseas Union Bank Ltd, 8.1 percent.

The Malaysian weighting in these estimates is high, except at DBS, where the bulk of the exposure was to Thailand. OCBC, on the other hand, said its Malaysia exposure comprises 78 percent of its total S$4.65 billion loan exposure to these countries.

Economists estimate that Singapore banks' loan exposure to Malaysia is about S$18 billion, about 10 percent of their aggregate loan portfolio.

"The impact on Singapore banks, with regard to loan exposure, isn't yet clear," said Chiang Yao Chye, Canadian Imperial Bank of Commerce director and head of Asia Pacific research in Singapore.

He added that the larger question is how the Malaysian capital and currency controls will effect the economy.

"There are restrictions on converting ringgit into foreign currency, but it isn't clear if this will stop banks and corporates from repaying outstanding loans - short of a debt moratorium," said one U.S. bank analyst in Singapore, adding that he had spoken with a number of Bank Negara officials.

"They have an open mind. They want to close the economy, but not void external contracts, " he said. "They want those contracts cleared so that Malaysia can start from scratch with a closed economy."