Singapore banks are so flush with cash that they’re struggling to work out what to do with it
- DBS lent Singapore’s central bank US$22 billion because it’s ‘not finding enough opportunities to put the money to work’, its CEO said
- The liquidity surplus underscores how the rich city state has become a beneficiary of Asia’s wealthy shifting their money to a perceived safe haven
The issue was highlighted in May when DBS Group Holdings Ltd. Chief Executive Officer Piyush Gupta said during an analyst call that the bank had lent the Monetary Authority of Singapore S$30 billion (US$22.3 billion) as it is “not finding enough opportunities to put the money to work”.
The liquidity surplus underscores how Singapore has been a beneficiary as Asia’s wealthy shift their money to a perceived safe haven, even as customers in the city state have flocked to lock in high interest rates on fixed deposits. Local lenders meanwhile have signalled a softer outlook for loan growth amid global economic uncertainty.
“Banks do not actively gather customer deposits just to park them at the central bank as a business strategy,” said Willie Tanoto, a director in Fitch Ratings’ financial institutions team. It’s likely that some banks have seen more deposit inflows than they can immediately deploy to suitable risk-adjusted asset opportunities, he added.
From a yield perspective, lending to customers would usually be more rewarding than keeping funds with central banks, Tanoto said. MAS’ standing facility accepts overnight deposits at a yield between 2.7 per cent to 4 per cent year-to-date, while a loan can range from high-3 per cent for a mortgage to over 27 per cent on credit cards.
DBS holds MAS bills, government treasury bills and lends short-term surplus funds to MAS in the normal course of business, a spokesperson said in response to queries, declining to comment specifically on the S$30 billion loan to MAS.