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SCMP Reporter

DEPUTY Prime Minister Lee Hsien Loong has been busy plotting a revolution, as Singapore gears up to celebrate its 30th anniversary year as a financial centre.

   He has been working behind the scenes for the past few months with former senior US central banker Gerald Corrigan and a collection of industry captains, on a high-level review of Singapore's banking, stock exchange and derivatives markets.

 The first results should be announced early in the New Year and are likely to herald a host of landmark changes.

 Mr Lee, who sees himself as a great liberaliser, eager to shake off Singapore's dowdy, dry and often fearsome image, progressively roll out the welcome mat to more foreign competition.

 His appointment on Friday as chairman of the Monetary Authority of Singapore (MAS), the republic's de facto central bank, will hasten the process.

 'There is a change in mind-set more than anything else,' Thomas Graeff, general manager of Templeton Asset Management (Singapore), said.

 Richard Hu, 71, admired as a stern regulator but one of the old order, will step down as MAS chairman after 12 years on January 1, to make way for Senior Minister Lee Kwan Yew's son. Mr Hu will stay on as finance secretary.

 MAS managing director Lee Ek Tieng will move upstairs to become vice-chairman, making way for Koh Yong Guan, at present second permanent finance secretary.

 Koh Beng Seng, MAS's top banking regulator, seen as the biggest obstacle of them all, resigned last month, protesting against change.

 Mr Lee has said there will be 'a series of thunderclaps', rather than a Tokyo- or London-style 'big bang'.

 Their recommendations are seen as a response to Lee Kwan Yew's criticism earlier this year that Singapore's financial sector lacked Hong Kong's 'buzz'.

 They will also lay the foundations for Singapore's future survival and prosperity once the World Trade Organisation's international financial services liberalisation pact, struck earlier this month in Geneva, becomes effective from 1999.

 Among early measures could be a liberalisation of the Singapore dollar; greater use of foreign talent in top management; relaxed foreign ownership; more competition, including access for foreign law firms; further tax breaks for the fund-management industry and off-shore activities; and a more friendly welcoming face from the austere MAS.

 Liberalisation of the Singapore dollar, which the old school protested against, fearing it would become more volatile, is likely to happen on a gradual basis. It is most likely to begin on a restricted basis for regional trade finance.

 Thio Siew Hua, head of research at Indosuez W.I. Carr Securities, said: 'We don't want to introduce a shock into the system, particularly at this time, given the regional economic crisis.'   Pressure is mounting for Singapore's commercial banks to merge or recapitalise, to prepare them to take on global competition when deregulation takes place.

 'The good thing about liberalising early is that it allows time for local firms to adjust,' Ms Thio said.

 Singapore boasts four big domestic banks - state-linked DBS Bank, Oversea Chinese Banking Corp (OCBC), United Overseas Bank (UOB), and Overseas Union Bank (OUB) - and a handful of smaller ones.

 The big boys may be large by regional standards, but are still a fraction of the size of the Hongkong & Shanghai Banking Corp and most Japanese or Western giants, who they will one day have to compete with on level terms.

 The government has unsuccessfully been trying for a few years to push the smaller banks into consolidating with the large ones, and for big ones to merge. No one seems happy to relinquish control.

 There are rumours the DBS, the largest bank, could merge with or take over OUB, the fourth largest.

 OUB chief executive Peter Seah has denied there are merger talks. However, analysts said the combination would make sense.

 DBS has wanted to expand overseas to provide a new avenue for growth. OUB has a wide regional presence but may not be big enough to survive in the new world order on its own.

 Lim Beng Eu, Vickers Ballas banking analyst, said: 'With greater competition coming in Singapore, there is a long-term need for local banks to spread their wings, to add another avenue for growth.'  DBS has recently acquired an 80 per cent stake in a Philippine bank and an 85 per cent stake in an Indonesian bank. It also bought a 10 per cent stake in a troubled Thai finance company, with a view to increasing this to 60 per cent, before the Thai firm was named among 56 to be shut down.

 OUB has a wide regional presence, including in Malaysia and Hong Kong, and is seen as very dynamic. However, its chairman, Lien Ying Chow, is ageing and rumoured to be reluctant to relinquish control of the bank he built.

 The other likely targets for buy-outs or mergers are seen as Tat Lee Bank and Keppel Bank of Singapore.

 Tat Lee's majority shareholder and chairman, Goh Eng Chew, is also ageing but is said to be keen to leave the family bank in tact to his son.

 Keppel Bank has the might of the giant Keppel Corp and should not find itself short of funds if it wants to recapitalise and grow.

 It recently acquired a Philippine bank.

 Should Keppel be prepared to sell or merge, UOB is thought to be an interested suitor. If Keppel, Tat Lee and OUB do not want to be taken over, analysts suggest the three team up.

 If Singapore banks fail to merge of their own accord, MAS could turn the heat up by further increasing shareholder funds and paid-up capital requirements, where weaker players would have little choice but to seek fresh funds or shut up shop.

  It is possible that one of the city state's giant conglomerates might come in as a knight in shining armour.

 It is rumoured that state-linked Singapore Technologies conglomerate, run by Lee Hsien Loong's wife Ho Ching, would love to get its hands on a bank and OUB would be its favourite target.

 When reforms begin, foreign banks are initially expected to be given access to the local retail market on a limited basis.

 Domestic banks have to adhere to strict reserve rules. It is likely foreign banks would be allowed access only if they agreed to adopt the same high capital requirements.

 A similar cautious approach could be seen in the liberalisation of its currency. Analysts expect to be initially freed up only for specific uses, such as regional trade financing.

  'They will liberalise [the Singapore dollar], but in a very measured way,' Indosuez's Ms Thio said.



New MAS chief wins chance for revolution