Further consolidation is expected in Singapore's banking sector

Singapore's recent wave of banking-sector consolidation that reduced five domestic players to three last year may not have run its course, according to ratings agency Standard & Poor's.

'It cannot be ruled out that further consolidation among the three local banking groups could take place, although S&P believes that market forces rather than government intervention will determine the pace of any merger,' it said yesterday. 'In the near term, the three . . . are likely to be preoccupied with integrating and extracting synergies from the assets acquired in 2001.'

Last year, after years of blunt suggestions from the Monetary Authority of Singapore that consolidation was essential, family-owned United Overseas Bank (UOB) fended off a rival bid from state-linked DBS Group to buy Overseas United Bank (OUB).

At the same time, Oversea-Chinese Banking Corp (OCBC) snapped up Keppel Capital Holdings, owner of Keppel TatLee Bank. The brace of deals pushed UOB into No 1 slot in terms of domestic assets although DBS retains the edge in total assets.

DBS last year bought Hong Kong's Dao Heng Bank and is the SAR's fourth-largest lender with a market share of about 4 per cent.

In its report released yesterday which outlines prospects for next year, S&P warned that the country's domestic banking system was 'among the least risky in Asia' but the three remaining players faced declining profit margins and rising foreign competition in 'a saturated home market'.