singapore as a global financial centre singapore, 26th may 2001 prof. dr. thomas a. lange

Singapore as a Global Financial Centre

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Singapore, 26th May 2001

Prof. Dr. Thomas A. Lange

Chief Country Officer, Deutsche Bank Group, SingaporeGeneral Manager, Deutsche Bank AG, Singapore Branch


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I. Singapore’s Financial Landscape


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1. Financial Services Industry at a Glance

Credit Ratings: Standard & Poor’s: AAA; Moody’s: Aa1

App. 11% GDP share of the financial services industry

More than 700 financial institutions

– thereof:

5 local banks (DBS, OCBC, UOB, OUB, KTL)

136 commercial banks

60 merchant banks

13 finance corporations

“… among the most sophisticated financial markets in the world …”

(World Economic Forum, Global Competitiveness Report, 1999)


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One Example: Global Foreign Exchange

1998

1995

1992

1989

Daily FX-Volume in USD bn

1.500

1.190

820

590 32

18

8

7

Global Market Share in %

Source: IMF


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II. The Regulatory Environment


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1. The Monetary Authority of Singapore …

The Financial Services Industry is regulated and controlled by the MoF through the MAS.

Established under the Monetary Authority of Singapore Act, 1970, MAS began its operations on 1 January 1971.

http://www.mas.gov.sg


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2. … and its Responsibilities

MAS regulates the financial and monetary environment of the country and plays an important role to develop Singapore as a “world-class financial centre”.

MAS performs all functions of a central bank except the currency issuing function.

MAS formulates and implements Singapore’s monetary and exchange rate policies.

MAS acts as a bank and as a lender of last resort.The Board of Commissioners of the Currency issues and redeems Singapore currency notes and

coins in exchange for other currencies or

gold.

“ … to be a central bank of excellence …”


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III. The Licensing Framework


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1. Banks and Merchant Banks

Full License

Bank

Restricted License

Offshore License

MerchantBank

No license but MAS approval


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2. Full License

Enables to provide full range of banking services to domestic and foreign customers

With approval of MAS branching permitted

Qualifying Full Bank privileges under the banking liberalisation programme announced in May 1999.

– additional branches and/or

– off-premise automated teller machines (ATMs), as well as

– to share ATMs amongst themselves

No German bank is operating under a full license.


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3. Restricted License

Created to accommodate further entry of commercial banks into Singapore

Same range of banking business as full licence banks except that they may not:

– accept Singapore dollar fixed deposits of less than S$250,000 per deposit from non-bank customers

– pay interest on Singapore dollar current accounts operated by resident individuals

Consequence: no retail banking


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4. Offshore License

Same opportunities as full and restricted banks, more restrictions. Additionally to conditions imposed on restricted banks, offshore banks also may not:

– accept interest bearing deposits from resident non-bank customers other than approved financial institutions

– extend total credit facilities in Singapore dollars exceeding S$500 million to non-bank customers who are residents of Singapore

Eight offshore banks were awarded Qualifying Offshore Bank privileges under the banking liberalisation.

– S$ lending limit increased to S$1 bn

– allowed to engage in S$ swaps, without any restriction on the purpose of the swaps


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IV. Asian Currency Units (ACUs)

Separate units (no separate legal entities) established with the permission of the MAS to conduct foreign currency denominated banking and merchant banking business

Prohibition from engaging in any SGD denominated business

Concessionary 10% tax rate on offshore income

Therefore most of the banks as well as merchant banks have two books.

Although ACU’s are governed by the

Banking Act, they are exempted from the

statutory liquidity requirements (s. 5.10)

and local minimum capital requirements

(s. 5.1). However, the activities of ACUs are subject to limit set by

the MAS.


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V. Financial Deregulation Initiatives since 1997/98

… with the aim

– to develop the bond market

– to push the equities and future market

– to boost the asset management industry

– to gradually internationalise the Singapore Dollar

– to segregate financial and non-financial assets

– to improve professional know how


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1. A Famous Quote ...

“Our Aim is to develop the financial sector further and make Singapore one of the key financial centres in our time zone, and in the world.”

DPM Lee Hsien LoongChairman, Monetary Authority of SingaporeNovember 1997


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2. Model of Singapore’s Bond Market

S$ Non S$

Government(SGS)

Property Companies

Statutory Boards

Corporates

Financial Institutions

Currency

Issuer


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3. Steps Towards A Successful SGS Market

In August 1998, MAS began issuing 10 year Singapore Government Securities (SGS) kick-starting the construction of a viable benchmark yield curve.

In September 1998, MAS established a public calendar for future regular issues.

In November 2000, MAS exercised the first regular buying back of 1 bn SGS to help to channel liquidity.

In September 2001, MAS will begin to issue 15 years SGS’s to further enhance the yield curve.


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4. Steps Towards A Successful Corporate Bond Market

Statutory Boards and government linked companies are encouraged to issue bonds and not only to rely on government funding

Foreign players are allowed to issue in Singapore Dollars under certain conditions

Tax incentives were introduced to approved bond intermediaries (ABIs) to develop the origination, placement and management of debt issues

The initiatives were announced in August

1998.


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5. Tax Incentives To Encourage A Vibrant Bond Market

Tax exemption on fee income earned from arranging, underwriting and distributing qualifying debt securities

Concessionary tax rate of 10% on interest income from holding “Qualifying Debt Securities” arranged in Singapore

Concessionary tax rate of 10% on interest income earned from trading in debt securities

Withholding tax exemption on interest from “Qualifying Debt Securities” arranges in Singapore payable to non-resident

“Qualifying Debt Securities” are defined as securities lead-managed by “Approved Bond Intermediaries” (ABI) in Singapore


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6. Total S$ and Non-S$ Denominated Debt Issuance

In S$ bn

S$ Denominated Debt Non-S$ Denominated Debt

6.7 4.29.2

14.41.84.5

10.3

36.1

1997 1998 1999 2000

8.5 8.7

19.5

50.5


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7. Breakdown of S$ Corporate Debt Issuance by IssuerType

Financial Institutions

Property Companies

Statutory Boards

Other Corporates

Asia Pacific 5%

UK/Europe 8%

USA 5%

41%

3%

10%

28%


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8. A True Success-Story

In April 2001 Singapore was given afurther boost when it became the secondAsian country (after Japan) and the 22ndworldwide to be included in the JPMorgan Global Government Bond Index.


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VI. Separation Of Financial and Non-Financial Activities

Last year the Government decided:

– to require the local banking groups to segregate their financial and non-financial activities

– and to unwind the cross-shareholdings of the two

There will be four key elements in the segregation involved.

Ownership Management

Cross- shareholding

Name-sharing


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Key Elements

Ownership

– MAS will require all the financial activities in each banking group to be grouped together, either under the bank or a non-operating financial holding company (FHC).

– The non-financial activities must be segregated from the banking group and divested.

– They can be sold to third parties, or alternatively to the principal shareholders of the bank.

– MAS will regulate the bank or FHC, but it will not regulate the non-financial activities.

Cross-shareholding

– The financial entities will not be allowed to own, directly or indirectly, the shares of non-financial firms affiliated to the same principal shareholder.

– Within the financial arm, shareholdings should only be in one direction.

– MAS will not allow two companies in the financial arm to have mutual shareholdings in each other.


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Key Elements (cont.)

Management

– The management of the financial entities should be separate from the management of its non-financial affiliates.

– no sharing of executive directors and management staff

– On the board of directors of a regulated financial entity, a majority of the directors should not be holding directorships on the boards of the non-financial affiliates.

Name-sharing

– MAS will disallow the sharing of names and logos between the financial and non-financial entities.


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VII. Financial Sector Development Fund

Facilitating development and enhancement of talent and other infrastructure for Singapore’s financial centre

Support of manpower development schemes:

– Executive Development Scheme (EDS)to encourage Singapore-based financial institutions to develop the skills and capabilities of their executive staff in key areas of expertise

– Global Enrichment Initiative (GEI)to help financial executives tap on world-class-know-how in other leading financial centres

– Training Infrastructure Enhancement Scheme (TIES)to encourage the development of a dynamic training environment that enhances Singapore’s competitiveness as an international financial centre


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VIII. Singapore’s Future Perspective

The qualifying for the Asian Financial Centres to be in the pole position is still ongoing.

However, the MAS achieved a lot and therefore remains very fast on track.

Keeping control over the local currency while continuing to develop the local debt market will be a juggling act that will keep MAS busy for a long time.

It may determine the viability of Singapore’s future as a regional financial hub and to lead regional consolidation.

singapore as a global financial centre singapore, 26th may 2001 prof. dr. thomas a. lange

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