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Singapore as a Global Financial Centre Singapore, 26th May 2001 Prof. Dr. Thomas A. Lange

Singapore as a Global Financial Centre Singapore, 26th May 2001 Prof. Dr. Thomas A. Lange Chief Country Officer, Deutsche Bank Group, Singapore General Manager, Deutsche Bank AG, Singapore Branch. I. Singapore’s Financial Landscape.

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Singapore as a Global Financial Centre Singapore, 26th May 2001 Prof. Dr. Thomas A. Lange

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  1. Singapore as a Global Financial Centre Singapore, 26th May 2001 Prof. Dr. Thomas A. Lange Chief Country Officer, Deutsche Bank Group, Singapore General Manager, Deutsche Bank AG, Singapore Branch

  2. I. Singapore’s Financial Landscape

  3. “… among the most sophisticated financial markets in the world …” (World Economic Forum, Global Competitiveness Report, 1999) 1. Financial Services Industry at a Glance • Credit Ratings: Standard & Poor’s: AAA; Moody’s: Aa1 • App. 11% GDP share of the financial services industry • More than 700 financial institutions • thereof: • 5 local banks (DBS, OCBC, UOB, OUB, KTL) • 136 commercial banks • 60 merchant banks • 13 finance corporations

  4. Global Market Share in % Daily FX-Volume in USD bn 32 1989 590 18 1992 820 8 1995 1.190 7 1998 1.500 One Example: Global Foreign Exchange Source: IMF

  5. II. The Regulatory Environment

  6. 1. The Monetary Authority of Singapore … • The Financial Services Industry is regulated and controlled by the MoF through the MAS. • Established under the Monetary Authority of Singapore Act, 1970, MAS began its operations on 1 January 1971. http://www.mas.gov.sg

  7. “ … to be a central bank of excellence …” 2. … and its Responsibilities • MAS regulates the financial and monetary environment of the country and plays an important role to develop Singapore as a “world-class financial centre”. • MAS performs all functions of a central bank except the currency issuing function. • MAS formulates and implements Singapore’s monetary and exchange rate policies. • MAS acts as a bank and as a lender of last resort. The Board of Commissioners of the Currency issues and redeems Singapore currency notes and coins in exchange for other currencies or gold.

  8. III. The Licensing Framework

  9. MerchantBank Bank Full License No license but MAS approval Offshore License Restricted License 1. Banks and Merchant Banks

  10. 2. Full License • Enables to provide full range of banking services to domestic and foreign customers • With approval of MAS branching permitted • Qualifying Full Bank privileges under the banking liberalisation programme announced in May 1999. • additional branches and/or • off-premise automated teller machines (ATMs), as well as • to share ATMs amongst themselves • No German bank is operating under a full license.

  11. Consequence: no retail banking 3. Restricted License • Created to accommodate further entry of commercial banks into Singapore • Same range of banking business as full licence banks except that they may not: • accept Singapore dollar fixed deposits of less than S$250,000 per deposit from non-bank customers • pay interest on Singapore dollar current accounts operated by resident individuals

  12. 4. Offshore License • Same opportunities as full and restricted banks, more restrictions. Additionally to conditions imposed on restricted banks, offshore banks also may not: • accept interest bearing deposits from resident non-bank customers other than approved financial institutions • extend total credit facilities in Singapore dollars exceeding S$500 million to non-bank customers who are residents of Singapore • Eight offshore banks were awarded Qualifying Offshore Bank privileges under the banking liberalisation. • S$ lending limit increased to S$1 bn • allowed to engage in S$ swaps, without any restriction on the purpose of the swaps

  13. Therefore most of the banks as well as merchant banks have two books. IV. Asian Currency Units (ACUs) • Separate units (no separate legal entities) established with the permission of the MAS to conduct foreign currency denominated banking and merchant banking business • Prohibition from engaging in any SGD denominated business • Concessionary 10% tax rate on offshore income Although ACU’s are governed by the Banking Act, they are exempted from the statutory liquidity requirements (s. 5.10) and local minimum capital requirements (s. 5.1). However, the activities of ACUs are subject to limit set by the MAS.

  14. V. Financial Deregulation Initiatives since 1997/98 … with the aim • to develop the bond market • to push the equities and future market • to boost the asset management industry • to gradually internationalise the Singapore Dollar • to segregate financial and non-financial assets • to improve professional know how

  15. 1. A Famous Quote ... “Our Aim is to develop the financial sector further and make Singapore one of the key financial centres in our time zone, and in the world.” DPM Lee Hsien LoongChairman, Monetary Authority of Singapore November 1997

  16. Non S$ S$ Currency Property Companies Statutory Boards Government(SGS) Corporates Financial Institutions Issuer 2. Model of Singapore’s Bond Market

  17. 3. Steps Towards A Successful SGS Market • In August 1998, MAS began issuing 10 year Singapore Government Securities (SGS) kick-starting the construction of a viable benchmark yield curve. • In September 1998, MAS established a public calendar for future regular issues. • In November 2000, MAS exercised the first regular buying back of 1 bn SGS to help to channel liquidity. • In September 2001, MAS will begin to issue 15 years SGS’s to further enhance the yield curve.

  18. 4. Steps Towards A Successful Corporate Bond Market • Statutory Boards and government linked companies are encouraged to issue bonds and not only to rely on government funding • Foreign players are allowed to issue in Singapore Dollars under certain conditions • Tax incentives were introduced to approved bond intermediaries (ABIs) to develop the origination, placement and management of debt issues The initiatives were announced in August 1998.

  19. 5. Tax Incentives To Encourage A Vibrant Bond Market • Tax exemption on fee income earned from arranging, underwriting and distributing qualifying debt securities • Concessionary tax rate of 10% on interest income from holding “Qualifying Debt Securities” arranged in Singapore • Concessionary tax rate of 10% on interest income earned from trading in debt securities • Withholding tax exemption on interest from “Qualifying Debt Securities” arranges in Singapore payable to non-resident • “Qualifying Debt Securities” are defined as securities lead-managed by “Approved Bond Intermediaries” (ABI) in Singapore

  20. 50.5 36.1 19.5 10.3 8.5 8.7 1.8 14.4 4.5 9.2 6.7 In S$ bn 4.2 1997 1998 1999 2000 S$ Denominated Debt Non-S$ Denominated Debt 6. Total S$ and Non-S$ Denominated Debt Issuance

  21. Property Companies 28% Statutory Boards Asia Pacific 5% 10% Financial Institutions 3% UK/Europe 8% USA 5% 41% Other Corporates 7. Breakdown of S$ Corporate Debt Issuance by Issuer Type

  22. 8. A True Success-Story

  23. Ownership Management Cross- shareholding Name-sharing VI. Separation Of Financial and Non-Financial Activities • Last year the Government decided: • to require the local banking groups to segregate their financial and non-financial activities • and to unwind the cross-shareholdings of the two • There will be four key elements in the segregation involved.

  24. Key Elements • Ownership • MAS will require all the financial activities in each banking group to be grouped together, either under the bank or a non-operating financial holding company (FHC). • The non-financial activities must be segregated from the banking group and divested. • They can be sold to third parties, or alternatively to the principal shareholders of the bank. • MAS will regulate the bank or FHC, but it will not regulate the non-financial activities. • Cross-shareholding • The financial entities will not be allowed to own, directly or indirectly, the shares of non-financial firms affiliated to the same principal shareholder. • Within the financial arm, shareholdings should only be in one direction. • MAS will not allow two companies in the financial arm to have mutual shareholdings in each other.

  25. Key Elements (cont.) • Management • The management of the financial entities should be separate from the management of its non-financial affiliates. • no sharing of executive directors and management staff • On the board of directors of a regulated financial entity, a majority of the directors should not be holding directorships on the boards of the non-financial affiliates. • Name-sharing • MAS will disallow the sharing of names and logos between the financial and non-financial entities.

  26. VII. Financial Sector Development Fund • Facilitating development and enhancement of talent and other infrastructure for Singapore’s financial centre • Support of manpower development schemes: • Executive Development Scheme (EDS)to encourage Singapore-based financial institutions to develop the skills and capabilities of their executive staff in key areas of expertise • Global Enrichment Initiative (GEI)to help financial executives tap on world-class-know-how in other leading financial centres • Training Infrastructure Enhancement Scheme (TIES)to encourage the development of a dynamic training environment that enhances Singapore’s competitiveness as an international financial centre

  27. VIII. Singapore’s Future Perspective • The qualifying for the Asian Financial Centres to be in the pole position is still ongoing. • However, the MAS achieved a lot and therefore remains very fast on track. • Keeping control over the local currency while continuing to develop the local debt market will be a juggling act that will keep MAS busy for a long time. • It may determine the viability of Singapore’s future as a regional financial hub and to lead regional consolidation.

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