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Singapore’s Banking Industry and its Major Banks

Singapore gained its traction as the Switzerland of Asia due to its top-notch financial hub of international repute servicing both domestic economy and the entire Asia Pacific region. The fast-growing economic, stable political environment, sound legal and tax policies, as well as the strict enforcement against crime and money laundering, have contributed to Singapore’s position as the leading global Finance Centre – the third largest in Asia, after Japan and Hong Kong. Among others, the banking industry is the key driver in the country’s financial sector, and it is rising as one of the strongest in the world. As of now, there are as many as 117 foreign banks and 6 local banks that dominate the banking scene in Singapore.

 

Industry Snapshots

Singapore is one of the top five most active foreign exchange trading centers in the world, and it is the second largest over-the-counter derivatives trading center in Asia, as well as a leading commodities derivatives trading hub in the region. Recognized as one of the premier asset management location in Asia with total assets under management around S$1 trillion, Singapore has the well-established capital markets in Asia-Pacific.

The Singapore Exchange (SGX) is the preferred listing location for more than 200 global companies. In fact, Singapore has grown to be the largest Real Estate Investment Trust (REITs) market in Asia ex-Japan and it provides an extensive offering of investments in business trusts of shipping, aviation and infrastructure assets. In addition to that, Singapore also offers fixed income investors a wide range of investment opportunities with an extensive range of both Singapore government securities and foreign corporate bonds.

 

Why is the banking industry in Singapore so successful?

Let’s have a look at the reasons behind the thriving banking industry,

  1. Liberalization of the domestic banking market
  2. Local banks strengthened their regional presence through mergers and acquisitions.
  3. 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.
  4. Increased competition spurred the development of innovative products and more competitive pricing models.
  5. Provision of sophisticated banking services like corporate and investment banking activities, apart from traditional lending and deposit-taking functions.
  6. 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.
  7. Recognizing and catering to the needs of Small and Medium Enterprises who comprise a sizable banking market in Singapore.

 

The Industry Trends of Singapore’s Banking Sector

 
1. Liberalization of banking sector

In order to strengthen the banking system as well as to improve Singapore’s reputation and position as an international financial hub, Monetary Authority of Singapore (MAS) had launched a five-year liberalization package in n May 1999. Among others, the introduction of a new category of full banking licenses known as Qualifying Full Bank (QFB) licenses to foreign banks, increased number of restricted banks, and greater flexibility given to offshore banks in Singapore Dollar wholesale business are the measures introduced. On top of that, MAS also set out to improve corporate governance practices and 40 percent of foreign shareholding limit in local banks has been lifted.

In June 2001, the second phase of liberalization began during which the restricted banks were re-classified as wholesale banks as a way to improve competitiveness in retail banking. QFBs were given more privileges like permission to establish more locations, provide debt and special account services while Qualifying offshore banks (QOBs) were given priority to upgrade themselves to wholesale banking status. As such, the consolidation of local banks was seen positive due to the resilience and stability of the banking system.
 
2. Growth of private banking industry

Singapore earned the sobriquet “Switzerland of Asia” due to its thriving private banking industry. Below are some of the reasons that contribute to the success of Singapore’s private banking industry.

(a) Strict banking secrecy laws

Under Section 47 of the Banking Act, 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.

(b) Non-recognition of the 2005 European Tax Directive

Singapore is one of the few remaining offshore centers that have 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).

(c) Generous tax incentives

Any capital gains and interest income generated from outside Singapore are not taxable here in Singapore.
 
3. Development of Investment banking hub

The development of investment banking industry in Singapore showcases the country’s potential and capability to mature into a key international debt-arranging hub in Asia as well as a thriving capital market. Below are the contributing factors that drive the development of investment banking industry:

(a) The steady flow of issuance from the Singapore Government, statutory boards, supra-nationals and corporates.

(b) The introduction of the Approved Bond Intermediary Scheme to nurture bond investors to sustain the debt market.

(c) Growth of SGX as an International exchange that attracts foreign investors into the country.

(d) High standards 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 played their parts to maintain investor confidence (which led to various initiatives to enhance disclosure, strengthen market discipline as well as improve corporate governance of listed companies)
 
4. Enhancement of Local Banking Groups

The consolidation of the previously 6 local banking groups into the present 3 main local banks (DBS, OCBC and UOB) has strengthened the banks’ capabilities which have in turn, building their management teams, enhancing operational effectiveness, expanding their range of business activities as well as improving their business and risk management capabilities. As of now, the local banks have evolved to become the “one stop shops” to meet all the needs of their banking customers. The greater financial strength is seen from the mergers and increased competition at home, where local banks started to venture overseas and develop a regional presence through overseas acquisitions.
 
5. SME Banking Services

SMEs are an important segment of the market. As such, local and foreign banks alike are keen to offer a wide range of financial services tailored to meet their needs. Among others, deposit products and cash management services, loan products, card products, insurance products, trade financing services and investment products are services and products designed to fit the needs of these enterprises. On top of that, the Government has rolled out various financing schemes to assist SMEs to upgrade, and expand their operations.

 

Types of Banks

Just like many other jurisdictions, Singapore’s banks cater to different types of clients, be it individuals, corporations or government agencies with their commercial banking (for businesses and corporations), retail banking (for individual members of the public) and private banking services.

Banks can be classified into 2 main categories, 6 local banks and 117 foreign banks. Among the foreign banks, it can be further sub divided into:

  • 27 full banks -provide the whole range of banking business approved under the Banking Act and 6 of the foreign banks operating in Singapore: HSBC, Citibank, Standard Chartered, Maybank, ABN AMRO and BNP Paribas have been awarded Qualifying Full Bank (QFB) privileges;
  • 53 Wholesale Banks – 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.
  • 37 Offshore Banks – provide banking services like 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). All offshore banks in Singapore operate as branches of foreign banks.
  • 42 Merchant banks – provide corporate finance, underwriting of share and bond issues, mergers and acquisitions, portfolio investment management, management consultancy and other fee-based activities. Examples: Credit Suisse Singapore Ltd, Barclays Merchant Bank Singapore Ltd, ANZ Singapore Ltd, Axis Bank Ltd etc.

 

Major Banks in Singapore

 
1. Major local banks

  • DBS (Development Bank of Singapore) – Established in 1968 and is currently the largest bank in Singapore and Southeast Asia (as measured by assets).
  • OCBC (Oversea Chinese Banking Corporation) – Established in 1912 and it is one of the largest financial institutions in the Singapore-Malaysia market with total assets of S$184 billion.
  • UOB (United Overseas Bank) – Established in 1935 and it is a leading bank in Singapore with a strong presence in the Asia-Pacific region.

 
2. Major foreign banks

  • HSBC –The Hong Kong and Shanghai Banking Corporation Limited first opened its doors in Singapore, December 1877. HSBC is an approved Primary Dealer in the Singapore Government Securities Market and an Approved Bond Intermediary (ABI).
  • Standard Chartered – Standard Chartered’s Singapore began its operations in Singapore in 1859. It is the largest custodian bank in Singapore for foreign institutions
  • ABN-AMRO Singapore – Owned by RBS, Santander and the Dutch government, ABN AMRO is one of the reputable foreign banks in Singapore.
  • Maybank – Maybank’s began its operations in Singapore in 1960 as a full-licensed commercial bank, is currently among the top five banks in ASEAN, and is a Qualifying Full Bank in Singapore.
  • BNP Paribas – BNP Paribas opened its door in Singapore since 1968 and was awarded a QFB status in 1999. As of now, BNP Paribas Singapore assumes a reputable 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 that started the operation in Singapore in 1902. 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 bank regulations and legislations are found in the relevant Acts passed by Parliament (and their related subsidiary legislation) while the common law and principles and rules of equity are derived from case law. These legislations regulate the banking sector in Singapore as well as ensure the legal framework for banking in Singapore keeps pace with the latest developments in the financial world.

The following are the relevant acts pertaining to the banking industry:

  1. Banking Act – The Banking Act (Cap 19, 2003 Rev Ed) is the legislation that governs commercial banks in Singapore.
  2. Monetary Authority of Singapore Act (Cap 186, 1999 Rev Ed) – governs all matters related to and connected to MAS and its operations.
  3. Anti Money Laundering Regulations
  4. Payment & Settlement Systems Guidelines
  5. Securities and Futures Act

 

Monetary Authority of Singapore and Its Roles

Established in 1971, the Monetary Authority of Singapore acts as a defacto central bank in order to regulate Singapore’s financial industry as well as to aid in its development as an international financial centre. The primary function of MAS is to ensure that the financial markets operate efficiently in line with national economic goals.

The roles of MAS:

  • 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