An Overview of The Singapore Banking Industry
Over the last several decades, Singapore has established itself as the pre-eminent Asian financial and banking hub. A flourishing financial centre with an internationally-recognised reputation, the city-state’s financial sector provides myriad services not only to the benefit of its own economy but to that of the entire Asia-Pacific region. The banking industry is a key driver of the country’s financial market, and is one of the most sophisticated in the world.
A number of factors have contributed to the country’s status as one of the key International Financial Centres in the region (the third-largest in Asia, behind Japan and Hong Kong) – a sound peaceful and prosperous economic and political environment coupled with legal and tax policies designed to attract local and international investment and business, a reputation for financial integrity and strict enforcement against crime and money laundering, are just some of the reasons why Singapore’s financial and banking sectors are globally ascendant.
Currently, 119 foreign banks and 6 local banks maintain operations in Singapore, contributing to the city-state’s reputation as a key financial hub.
There are a number of internal and external factors that have encouraged the success of the Singaporean banking industry:
- Increasing liberalisation of the domestic banking market
- Mergers and acquisitions between local banks contributing to a strengthened regional presence.
- Expanded foreign banking presence, many of whom have chosen to make Singapore their regional or global headquarters for key banking services, leading to an increase in the competitiveness of the company’s financial sector.
- Development of new and innovative products and more competitive pricing models stemming from the aforementioned increased industry competition.
- Availability of corporate and investment banking activities and other sophisticated financial and banking services over and in addition to traditional lending and deposit-taking functions.
- An enhanced private banking presence as a result of favourable regulatory and legislative conditions stemming from strict banking secrecy laws, tax-friendly policies and a high-density of wealth management service providers. Fresh demand for private-banking operations accessible via Singapore from both Europe and Asia has led to an expansion of the operations of the Swiss giants Credit Suisse Group and UBS AG.
- Recognition of the need for provision of niche services tailored to the specific needs of Small and Medium Enterprises (SMEs) – these business now compose a significant portion of the available Singaporean banking market.
Ottavia has prepared this guide as a broad overview of the Singaporean banking industry, with special focus given to the key trends, major domestic and international organisations operating within the country and the services they provide, the role of the Monetary Authority of Singapore (MAS) and the extent of the current banking regulations that broadly govern the direction and extent of the industry.
Banking industry trends
From May of 1999 to 2004, the Monetary Authority of Singapore implemented a five-year liberalisation package with the stated goal of strengthening the local banking system and enhancing the country’s reputation as a premier international finance destination. Included in this package was the creation of a new category of full banking licenses referred to as Qualifying Full Bank (QFB) licenses. QFB licenses are offered to foreign banks, encouraging them to make additional investment in Singapore. Additionally, the liberalisation package included increasing the number of restricted banks, and offering offshore banks a greater amount of flexibility in conducting their Singapore Dollar wholesale business. Simultaneously, MAS sought to improve corporate governance practices across the sector while lifting the 40 per cent foreign shareholding limit on local banks in order to open them up to additional investment.
The second phase of the liberalisation package was embarked upon in June of 2001. Under this phase of the package, restricted banks were re-classified as wholesale banks in order to enhance their competitiveness in the retail banking market, and Qualifying Full Banks (QFBs) were provided with additional privileges such as the ability to provide debt and special account services and were granted the permission to establish more locations. Qualifying Offshore Banks (QOBs) were given priority, allowing them to upgrade to wholesale banking status sooner. Consolidation efforts in the local banking market were seen as a positive step, as consolidation helped to stabilise the local banking system, increasing its resilience against any possible financial crisis.
Expansion of the private banking sector
The growing high net worth community across Asia, Europe and the Middle East has attracted the attention of the Singapore banking community, leading to an expansion of the range of services targeted at these individuals. The city-state has emerged as one of the world’s key destinations for the provision of private banking services, leading to its earning the sobriquet ‘the Switzerland of Asia’. The growth of the private banking sector can be attributed to:
- Non-recognition of the 2005 European Tax Directive – like the region’s other financial hub Hong Kong, Singapore was one of the few remaining offshore centres that did not sign any agreement relating to the European Union Savings Directive (EUSD). The EUSD allows signatories to exchange private information relating to individuals involved in banking or investment within their jurisdiction.
- 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.
- Substantial tax incentives – Both interest income derived from outside Singapore and capital gains are not subject to Singaporean tax.
The Singaporean private banking community includes respected companies such as Citigroup, Credit Suisse, UBS and Standard Chartered amongst others. Together this community provides:
- investment strategies
- wealth and lifestyle advisory services
- global wealth management services
- asset protection
- tax and estate planning
- credit services
Maturation of the investment banking sector
As Singapore built the infrastructure to support and gained a reputation as a key international debt arranging hub in Asia, the local investment banking industry began to develop and open itself up. A number of factors have contributed to the ongoing and accelerating success and growth of the country’s capital market:
- Encouragement of an increased flow of issuance from the Singapore government, as well as statutory boards, supra-nationals and corporate entities.
- The launch of the Approved Bond Intermediary Scheme, helping to nurture bond investors who continue to sustain the debt market.
- Maturation of Singapore Exchange as an international exchange with the necessary capabilities to attract foreign companies, accounting for more than a quarter of all listings on the Exchange.
- High standards of operation leading to continued investor confidence led to the implementation of various initiatives designed to strengthen market discipline, enhance disclosure and improve the corporate governance of companies listed on the Singapore Exchange. Revisions to the SGX listing rules, implementing the Code of Corporate Governance and introducing a new civil penalty regime under the Securities and Futures Act were the primary instruments used.
The majority of Singaporean investment banks perform a variety of investment and corporate-finance related activities, including:
- Acting as a broker for institutional clients
- Facilitating corporate reorganisations as well as mergers and acquisitions
- Underwriting securities
- Acting as an intermediary between the issuer of securities and the investing public
Strengthening of local banking groups
The consolidation of the previous six listed local banking groups into three primary local banks (OCBC, UOB and DBS) has been a significant change in the local financial industry. The end result was an overall strengthening of the capabilities of the individual banks, deepening the experience and expertise of their management teams and resulting in an enhanced operational effectiveness. Their business capabilities and their ability to manage risk have been enhanced, and their range of business activities has been extended, turning the banks into ‘one stop shops’ with the ability to meet all the needs of a diverse range of customers. Increased competition at home, combined with greater financial strength that comes from merging their assets means that these banks have begun to venture outside of Singapore, exploring the available opportunities for expanding their regional footprint through a number of acquisitions of overseas organisations.
Increasing banking options for SMEs
There is increasing awareness within both local and foreign banks based in Singapore of the importance that SMEs play in the financial market, resulting in an increasing push to offer a wider range of financial services to meet their precise needs. Everything from new card products, to trade financing services (import/export products), loan products, deposit products, cash management services and investment products have been developed and rolled out to cater to the specific requirements of this enterprise class. A range of financing schemes helping SMEs to upgrade, modernise and expand their operations have been rolled out by the Government as an alternative to commercial credit.
- More than 200 global companies choose the Singapore Exchange (SGX) as their preferred listing location, thanks to Singapore’s well-established and highly mature capital markets – one of most developed in Asia-Pacific.
- Outside of Japan, Singapore has overtaken other regional powerhouses including Hong Kong Korea to become the largest Real Estate Investment Trust (REITs) market in Asia, providing an extensive and highly-diverse range of investments in business trusts of shipping, aviation, and infrastructure assets.
- Investors can enjoy a wide range of investment opportunities in Singapore, thanks to the extensive range of both foreign corporate bonds and government securities available.
- Singapore is a leading commodities derivatives trading hub and the second largest trading centre of over-the-counter derivatives in Asia. Additionally, it’s one of the top five most active foreign exchange trading centres in the world.
- With total assets under management hovering around S$1 trillion, Singapore has built a reputation as one of Asia’s premier asset management locations.
Types of banks
The majority of Singaporean banks distinguish themselves by the clientele they cater to – generally individuals, corporations or government agencies. Between them, these banks provide retail banking (for individual members of the public), commercial banking (for corporations and businesses of all sizes) and private banking (for high net-worth individuals). Banks can be categorised into two main categories based on their country of origin:
- Local banks (6)
- Foreign banks (121) – which can be further sub divided into:
- Full banks (29) – which provide the full spectrum of banking services approved under the Banking Act. Six of the full banks maintaining operations in Singapore have been awarded Qualifying Full Bank privileges, allowing them to operate up to 25 locations, share ATMs between themselves, relocate sub-branches freely and provide debit services through the EFTPOS network. These banks include: HSBC, Citibank, Standard Chartered, Maybank, ABN AMRO and BNP Paribas.
- Wholesale banks (55) – provide the same spectrum of banking activities as full banks with the exception of retail banking activities conducted in the Singapore dollar. All wholesale banks in operation in Singapore do so as branches of foreign banks. Includes: ING bank, National Australia Bank, Barclays Bank, Deutsche Bank, etc.
- Offshore banks (37) – permitted to engage in the same breadth of activities as both wholesale and full banks where the business is transacted through their Asian Currency Units (an accounting unit used by banks to book all foreign currency transactions conducted in the Asian Dollar Market). Any Singapore dollar transactions are booked separately by the banks in the Domestic Banking Units. All offshore banks operating in Singapore do so as branches of foreign banks. Includes: Korea Development Bank, Bank of Taiwan, Bank of New Zealand, Canadian Imperial Bank of Commerce, etc.
- Merchant Banks (31) – provide corporate finance, portfolio investment management, management consultancy, underwriting of share and bond issues, mergers and acquisitions, and other fee-based activities. Many merchant banks have established Asian Currency Units with the approval of the Monetary Authority of Singapore, allowing them to compete with commercial banks in the Asian Dollar Market. Through their Domestic Banking Units, these banks may accept deposits or borrow, but only from other banks, finance companies, shareholders and companies controlled by their shareholders. Includes: Credit Suisse Singapore Ltd, Barclays Merchant Bank Singapore Ltd, ANZ Singapore Ltd, Axis Bank Ltd, etc.
Major banks operating in Singapore
- Established in 1968, DBS Bank (formally the Development Bank of Singapore) is by many metrics – including total assets – the largest bank in both Singapore and Southeast Asia. The leading consumer bank in both Singapore and Hong Kong, it serves a local customer base of 4 million and 1 million, respectively. With more than 100 branches at present, it also maintains the largest retail network in the country.
- The Oversea Chinese Banking Corporation (OCBC) was established more than a century ago in 1912. It is one of the Singaporean-Malaysian market’s largest financial institutions, holding assets of more than US$332 billion and is a consistent leader in rankings of regional banks.
- United Overseas Bank (UOB) is a leading bank in Singapore, maintaining a strong regional presence across Asia-Pacific since establishment in 1935. With assets exceeding US$231 billion, it operates more than 500 offices across 19 countries.
- The Hong Kong and Shanghai Banking Corporation Limited (HSBC) is one of the best-known and most successful banks in the world. The sixth largest bank in the world by total assets, HSBC controls more than US$2.4 trillion and has a history stretching back to 1865. An approved Primary Dealer in the Singapore Government Securities Market and an Approved Bond Intermediary (ABI), it is a qualifying full bank with extensive operations across retail, corporate and private banking sectors.
- Standard Chartered – With operations in Singapore extending back to 1859, Standard Chartered is one of the longest continuously operating foreign banks in the city. It boasts the largest branch network of any foreign bank in the city with 20 branches, as well as its private banking global headquarters in Singapore as of 2007. Singapore is Standard Chartered’s second largest consumer banking market, the largest custodian bank in the city for foreign institutions, and has held a Qualifying Full Bank licence since 1999.
- ABN-AMRO Singapore – Now owned by the Dutch government, ABN AMRO. The company was broken up in the wake of the Global Financial Crisis and re-established in 2009 by a banking consortium consisting of Royal Bank of Scotland Group, Santander Group and Fortis. It was listed as a public company in 2015 after being nationalised alongside Fortis Bank Nederland. At the end of 2016, the bank sold its private-banking assets in Asia and the Middle East to Liechtenstein-based LGT Group.
- Maybank – Maybank established its Singaporean presence in 1960 and has operated since then as a full-licensed commercial bank. Currently enjoying a position as one of the top five banks in ASEAN, it holds more than US$165 billion in total assets.
- BNP Paribas – At the forefront of Singaporean banking since 1968, BNP Paribas has enjoyed Qualifying Full Bank status since 1999. It’s Singapore branch commands a prominent presence in the Asian-Pacific financial market by acting as the group’s regional hub for both its private banking, and its corporate and investment banking operations.
- Citibank – The first American bank to establish itself in Singapore in 1902, and while a relative latecomer to the local retail-banking sector, it has developed itself into a formidable player with commanding market shares in several key businesses including unsecured lending, deposits and investments and secured assets. Citibank was one of the first foreign banks to be awarded a Qualifying Full Bank licence when the Monetary Authority of Singapore first made the licences available in 1999.
Banking regulations and relevant legislation
Banking regulations are formed in Singapore by the passing of Acts by Parliament (and their related subsidiary legislation), as well as the common law and the principles and rules of equity – the latter two drawn from case law. This body of legislation not only provides a way to regulate the Singaporean banking sector, but also keeps the legal framework for the country’s financial sector in pace with that of other countries and the latest financial developments. Key relevant Acts include:
- Banking Act – The Banking Act (Cap 19, 2003 Rev Ed) is the legislation that governs commercial banks in Singapore.
- Monetary Authority of Singapore Act (Cap 186, 1999 Rev Ed) – governs all matters related to and connected to MAS and its operations.
- Anti Money Laundering Regulations
- Payment & Settlement Systems Guidelines
- Securities and Futures Act
The role of the Monetary Authority of Singapore (MAS)
Established in 1971 to both regulate the local financial industry and to help develop the city as an international financial centre, the Monetary Authority of Singapore functions as a de factor central bank. Its primary role is ensuring that the country’s financial markets operate in the smoothest and most efficient manner, working towards the achievement of national economic goals. The Monetary Authority of Singapore is responsible for the following:
- 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