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SCMP Reporter

Singapore last night unveiled an action plan to strengthen and liberalise its banking sector in a major push to become the region's premier banking centre.

 The blueprint, the main points of which were announced by Deputy Prime Minister Lee Hsien Loong, include higher disclosure standards, slashing the minimum amount of cash banks must deposit in reserve and opening up the finance sector to foreign competition.

 Measures will also be taken to encourage more local bank mergers and to adopt a less bureaucratic, risk-focused approach to banking supervision.

 'Now is the time - when we are in a position of strength and have the luxury of choice - to start thinking and preparing how to meet this competitive challenge,' Mr Lee said in a keynote speech to the Association of Banks in Singapore.

 'If we do this right, we will be well-positioned to become the premier banking centre in Asia,' said Mr Lee, who is also chairman of the Monetary Authority of Singapore.

 Singapore officials believe there may be room for two or possibly three major financial hubs in Asia after 2000.

  They say Tokyo will be one of the centres, leaving Singapore, Hong Kong, Shanghai and Sydney to fight it out for the other one or two slots.

 In February, the Hong Kong Monetary Authority announced its first major review of the SAR's banking sector since the mid-1980s. The results have yet to be published.

 The conclusions of Singapore's official review on banking disclosure also have yet to be released.

 Mr Lee indicated that banks will need to publish regularly their level of non-performing loans and provisioning. He also said banks will no longer be able to maintain hidden reserves.

 They will also need to account for their stakes in associated companies and disclose the market value of investments, which have largely been valued at book cost in the past.

 Mr Lee said these new accounting practices would go beyond the strict disclosure requirements adopted by some developed countries. The minimum cash balance banks need to place with the MAS to ensure against sudden customer withdrawals will be halved from 6 to 3 per cent of their liabilities, saving banks S$135 million (about HK$613 million) a year in foregone earnings.

  Bankers complain the current level, one of the highest in the world, erodes the competitiveness of Singapore's banks.

  The cash held by the de facto central bank does not earn any interest and imposes a charge on banks that is passed on to customers in the form of higher costs of funds.

 In addition, there is an opportunity cost to banks in that the money could have been put to more productive use as working capital.

 Mr Lee said the introduction of a real-time gross settlement system for bank payments in July would remove some of the risk inherent with settlements and would make a relaxing of the minimum cash balance possible.

  He said the MAS would impose stricter minimum balances on any bank experiencing financial difficulties or poor liquidity management systems.

 As for supervision, Mr Lee said the MAS would be changing its approach from a bottom-up micro approach to a top-down risk-focused approach as being adopted by the Federal Reserve Board in the United States and by the Bank of England in Britain.

 Instead of extensive evaluation of individual transactions, the MAS will concentrate its energies on making sure banks themselves properly monitor risk.

 'Inspectors will concentrate on the process by which a bank's management itself addresses its risks, instead of tooth-combing the books for control deficiencies,' Mr Lee said.

 The MAS will give more flexibility to stronger banks, allowing them to push and lead the market, while penalising weaker ones with stricter controls.

 Mr Lee said the government would take steps to create a more level playing field for local and foreign institutions in the banking, securities and insurance sectors in the next five years. Proposals included allowing foreign banks sub-branches and off-premise automated teller machines.

TOP TARGET Reserves minimum to be cut as sector admits foreigners Higher disclosure standards planned 



Singapore banks set reforms, mergers challenge