The Banking Industry and the Major Players in Singapore
Singapore is a flourishing financial centre of international repute servicing not only its domestic economy per se but also the entire Asia Pacific region. The banking industry is a key player in the country’s financial market segment, soon emerging as one of the strongest in the world. Factors such as a sound economic and political environment, conducive legal and tax policies, reputation for integrity, and strict enforcement against crime and money laundering, have contributed to Singapore’s status as an International Finance Centre – the third largest in Asia, after Japan and Hong Kong. Today there are as many as 117 foreign banks and 6 local banks that dominate the banking scene.
Factors that have contributed to the success of the banking industry in Singapore include:
- Liberalisation of the domestic banking market.
- Local banks strengthened their regional presence through mergers and acquisitions.
- Expansion of foreign banks, some of which made Singapore a regional or even global platform for important banking services, which in turn led to increased competitiveness.
- Increased competition spurred the development of innovative products and more competitive pricing models.
- Provision of sophisticated banking services like corporate and investment banking activities, apart from traditional lending and deposit-taking functions.
- Strict banking secrecy laws, tax friendly policies and a suite of wealth management services created a private banking boom. Swiss giants Credit Suisse Group and UBS AG have expanded private-banking operations in Singapore to cater to new demand from Asians and Europeans.
- Recognising and catering to the needs of Small and Medium Enterprises who comprise a sizable banking market in Singapore.
This guide provides an overview of the banking industry in Singapore focusing on the key trends, the major domestic and international players and the services they offer, the role of the Monetary Authority of Singapore (MAS) and banking regulations that govern the industry today.
Singapore’s Banking Industry Trends
Liberalisation of banking sector
In May 1999, MAS launched a five-year liberalisation package to strengthen the banking system and to improve Singapore’s reputation as an international financial centre. The measures included issuing a new category of full banking licenses known as Qualifying Full Bank (QFB) licenses to foreign banks, increasing the number of restricted banks, and giving offshore banks greater flexibility in Singapore Dollar wholesale business. MAS also set out to improve corporate governance practices. Furthermore, the 40 percent foreign shareholding limit in local banks was lifted.
The second phase of liberalisation began in June 2001 during which the restricted banks were re-classified as wholesale banks to improve competitiveness in retail banking. QFBs were given more privileges (permission to establish more locations, provide debt and special account services). Qualifying offshore banks (QOBs) were given priority to upgrade themselves to wholesale banking status. Consolidation of local banks was seen as a positive, stabilising move as these banks play a pivotal role in providing resilience and stability to the banking system, especially during a financial crisis.
Growth of private banking industry
Singapore has capitalised on the growing number of high net worth individuals in Asia and other regions like Europe and the Middle East, emerging as a leading private banking destination for international investors. Singapore has earned the sobriquet “Switzerland of Asia”, attributable to
- Strict banking secrecy laws – Section 47 of the Banking Act states that customer information shall not, in any way, be disclosed by a bank or any of its officers, to any other person except as expressly provided in the Banking Act.
- Non-recognition of the 2005 European Tax Directive – Singapore is one of the few remaining offshore centres that has not signed up to the EU’s Savings Tax Directive, whose country members can exchange private information relating to individuals who bank and invest in these countries.
- Generous tax incentives – Capital gains and interest income from outside Singapore are not taxed here.
Private banks such as UBS, Credit Suisse, Citigroup and Standard Chartered to name a few, provide:
- global wealth management services
- wealth and lifestyle advisory services
- investment strategies
- tax and estate planning
- asset protection
- credit services
Investment banking hub
The investment banking industry opened up as Singapore matured into a key international debt arranging hub in Asia. The following factors have contributed to the country’s active and thriving capital market:
- Encouraging a steady flow of issuance from the Singapore Government, statutory boards, supra-nationals and corporates.
- Launching the Approved Bond Intermediary Scheme that nurtured bond investors to sustain the debt market.
- Growth of SGX as an International exchange which attracted many foreign companies, who account for more than a quarter of total listings.
- High standards to maintain investor confidence led to various initiatives to enhance disclosure, strengthen market discipline and improve corporate governance of listed companies. These measures included: the Code of Corporate Governance, revisions to the SGX listing rules and the introduction of the new civil penalty regime under the Securities and Futures Act.
Most investment banks in Singapore perform various corporate-finance and investment related activities like:
- Underwriting securities
- Acting as an intermediary between an issuer of securities and the investing public
- Acting as a broker for institutional clients
- Facilitating mergers and acquisitions; and
- Corporate reorganization
Strengthening of local banking groups
A major move in the local banking sector was the consolidation of the previously 6 local banking groups into the present 3 main local banks (DBS, OCBC and UOB). This led to strengthening the banks’ capabilities, building their management teams and enhancing operational effectiveness. They have expanded their range of business activities and have also improved their business and risk management capabilities. Today, the local banks are “one stop shops” designed to meet all the needs of their banking customers. With greater financial strength from the mergers and increased competition at home, local banks have begun to venture abroad and develop a regional footprint through overseas acquisitions.
SME Banking Services
Local and foreign banks alike have recognised that SMEs are an important segment of the market and offer a wide range of financial services tailored to meet their needs. Deposit products and cash management services, loan products, card products, insurance products, trade financing services (import/export products) and investment products are all designed to cater to the needs of these enterprises. In addition to commercial credit, the Government also has financing schemes to assist SMEs to upgrade, modernise and expand their operations.
- With one of the more well-established capital markets in Asia-Pacific, the Singapore Exchange (SGX) is the preferred listing location for more than 200 global companies.
- Singapore has grown to be the largest Real Estate Investment Trust (REITs) market in Asia ex-Japan and also provides an extensive offering of investments in business trusts of shipping, aviation and infrastructure assets.
- With an extensive range of both Singapore government securities and foreign corporate bonds available, Singapore offers fixed income investors a wide range of investment opportunities.
- As one of the top 5 most active foreign exchange trading centres in the world, Singapore is also the second largest over-the-counter derivatives trading centre in Asia, and a leading commodities derivatives trading hub.
- Singapore is recognized as one of the premier asset management location in Asia with total assets under management around S$1 trillion.
Types of Banks
Most banks in Singapore cater to different types of clients – individuals, corporations or government agencies. These banks provide commercial banking (catering to businesses and corporations), retail banking (catering to individual members of the public) and private banking (catering to HNWIs) services. Banks can be classified into 2 main categories:
- Local Banks (6)
- Foreign Banks (117) – further sub divided into
- Full Banks (27) – provide the whole range of banking business approved under the Banking Act. Six of the foreign banks operating in Singapore have been awarded Qualifying Full Bank (QFB) privileges. These banks include: HSBC, Citibank, Standard Chartered, Maybank, ABN AMRO and BNP Paribas.
- Wholesale Banks (53) – engage in the same range of banking activities as full banks, except Singapore Dollar retail banking activities. All wholesale banks in Singapore, operate as branches of foreign banks. Examples: ING bank, National Australia Bank, Barclays Bank, Deutsche Bank etc.
- Offshore Banks (37) – engage in the same activities as full and wholesale banks for businesses transacted through their Asian Currency Units (an accounting unit, which banks use to book all foreign currency transactions conducted in the Asian Dollar Market). The banks’ Singapore dollar transactions are separately booked in the Domestic Banking Unit (DBU). All offshore banks in Singapore, operate as branches of foreign banks. Examples: Korea Development Bank, Bank of Taiwan, Bank of New Zealand, Canadian Imperial Bank of Commerce etc.
- Merchant banks (42) – provide corporate finance, underwriting of share and bond issues, mergers and acquisitions, portfolio investment management, management consultancy and other fee-based activities. Most merchant banks have, with MAS’ approval, established ACUs, through which they compete with commercial banks in the Asian Dollar Market. In their DBU, they may accept deposits or borrow only from banks, finance companies, shareholders and companies controlled by their shareholders. Examples: Credit Suisse Singapore Ltd, Barclays Merchant Bank Singapore Ltd, ANZ Singapore Ltd, Axis Bank Ltd etc.
Major Banks in Singapore
Major local banks
- DBS (Development Bank of Singapore) established in 1968, is considered the largest bank in Singapore and Southeast Asia, as measured by assets. It is a leading consumer bank in Singapore and Hong Kong, serving over 4 million and 1 million retail customers respectively. It also has the largest retail network in Singapore, with 80 branches at present. It ranked 14th in The Banker’s “Top 200 Asian Banks 2008”.
- OCBC (Oversea Chinese Banking Corporation) established in 1912, is one of the largest financial institutions in the Singapore-Malaysia market with total assets of S$184 billion. It ranked 1st in “Top 5 Regional Banks”, Asia Risk End-User Survey 2008.
- UOB (United Overseas Bank) established in 1935, is a leading bank in Singapore with a strong presence in the Asia-Pacific region. As at 31 December 2007, the UOB Group had total assets of S$175.0 billion. It was awarded the “Best Overall Fund Group in Singapore” during The Edge-Lipper Singapore Fund Awards 2008.
Major foreign banks
- HSBC – In Singapore, The Hong Kong and Shanghai Banking Corporation Limited first opened its doors in December 1877. HSBC is an approved Primary Dealer in the Singapore Government Securities Market and an Approved Bond Intermediary (ABI). It is a QFB honoured with 33 awards at Global Finance Awards 2006 by Global Finance.
- Standard Chartered – Standard Chartered’s Singapore operations began in 1859 and today boasts of a largest branch network (20) among international banks in the Republic. It is the Group’s second largest consumer banking market and was awarded a Qualifying Full Bank (QFB) licence in 1999. It is the largest custodian bank in Singapore for foreign institutions, rated top for the past seven years in Global Custodian’s Agent Bank Survey.
- ABN-AMRO Singapore – ABN AMRO is now owned by RBS, Santander and the Dutch government. Its various businesses around the globe are currently being separated from ABN AMRO and integrated in line with each owner’s plans.
- Maybank – Maybank’s presence in Singapore began in 1960 as a full-licensed commercial bank. Maybank is currently among the top five banks in ASEAN and is a Qualifying Full Bank in Singapore. As of June 2008, Maybank’s total assets amounted to S$22.7 billion in Singapore.
- BNP Paribas – BNP Paribas has been at the forefront of banking in Singapore since 1968 and was awarded a QFB status in 1999. Today, BNP Paribas Singapore assumes a prominent presence in the region by acting as the Group’s regional hub for its business in Corporate and Investment Banking as well as Private Banking.
- Citibank – Citibank was the first American bank to set up a branch in Singapore in 1902. Although a relative latecomer to the retail-banking sector, the bank has grown into a formidable market player with major market share in key businesses including unsecured lending, deposits and investments and secured assets. Citibank was among the first four foreign banks to be awarded the Qualifying Full Bank (QFB) license in 1999.
Bank Regulations and Legislation
In Singapore, the laws regulating banking are found in the relevant Acts passed by Parliament (and their related subsidiary legislation), the common law and principles and rules of equity. The common law and principles and rules of equity are derived from case law. These legislations not only regulate the banking sector in Singapore, but also ensure that the legal framework for banking in Singapore keeps pace with the latest developments in the financial world. The relevant acts pertaining to the banking industry include:
- Banking Act – The Banking Act (Cap 19, 2003 Rev Ed) is the legislation that governs commercial banks in Singapore
- Monetary Authority of Singapore Act (Cap 186, 1999 Rev Ed) – governs all matters related to and connected to MAS and its operations
- Anti Money Laundering Regulations
- Payment & Settlement Systems Guidelines
- Securities and Futures Act
Role of Monetary Authority of Singapore
In Singapore, the Monetary Authority of Singapore acts as a defacto central bank. It was established in 1971 in order to regulate Singapore’s financial industry to aid in its development as an international financial centre. Its primary function is to ensure that the financial markets operate in an efficient and smooth manner, in line with national economic goals. The MAS is responsible for the following:
- Implementing monetary policy
- Supervisor of the banking systems
- Banker to the government
- Banker to the banks
- Controller of International Reserves
- Issuer of currency
- Issuer of banking licences
- Lender of last resort
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