Keynote Address by Mr Heng Swee Keat, Minister for Finance, and MAS Board Member, at the DBS Asian Insights Conference on 13 July 2018

Mr Peter Seah, Chairman, DBS Group Holdings,
Mr Piyush Gupta, CEO, DBS Group Holdings,
Ladies and Gentlemen,

Introduction

1.     Good morning to everyone. Thank you for inviting me to join you today. My heartiest congratulations to DBS on your 50th anniversary and for being the only Asian bank to win two awards on this very special occasion – the best digital bank and the best SME bank. This is something which I think all DBS staff would be very proud of and all of us are very proud of.

2.     In the last fifty years, our financial sector has grown significantly, with its share of GDP increasing from 3.0% in 1968 to 13.0% in 2017. Today, we are ranked amongst the top financial centres globally1, home to about 1,200 local and international financial institutions.

Journey Towards An International Financial Centre

3.     We have not gotten here by chance. Our current standing is an outcome that all of us, including DBS, have worked hard for. What are the key decisions that we have taken that enabled us to achieve this?

4.     Now DBS is 50 this year, so I’ll start in the year that DBS was founded, in 1968. The same year our journey towards an international financial centre began with a bold decision made by Mr Lee Kuan Yew to set up the Asian Dollar Market.

a) At that time, we were under the sterling area which imposed control restrictions on the movement of monies. It was therefore impossible to form a foreign currency pool. The Bank of England warned that we might have to leave the sterling area if we did so.

b) Mr Lee believed that the potential benefits to Singapore made the risk worth taking and we went ahead. Thankfully, we were not forced to break financial linkages with the UK and on hindsight, it was the right decision as the sterling area was dissolved four years later.

5.     The formation of the Asian Dollar Market paved the way for us to become a major offshore banking centre in Asia. We started off as a funding base, attracting international banks to set up in Singapore to intermediate surplus funds between Asia and the world. Over time, we reviewed our policies to remove exchange controls and developed our capabilities as a foreign exchange market.

6.     As our financial sector grew and matured, it became apparent that our local institutions needed to keep pace with international developments and technological advancements. Led by PM Lee, who was then DPM and Chairman of MAS, the next phase of development began through the progressive liberalisation of the banking sector in 1999.

a) The aim was to spur our local banks to upgrade their capabilities while encouraging foreign banks to grow strong stakes in Singapore to better serve the region.

b) At the same time, we moved from “one-size-fits-all” prescriptive regulation to risk-based supervision, while strengthening corporate governance to ensure that the right persons were appointed to provide effective oversight over banks.

7.     The outcome speaks for itself. We now have more than 200 banks in Singapore providing a wide range of activities across the region. Our local banks have also grown to be strong and dynamic players, rated among the top 20 of the world’s safest banks2. And earlier you heard the accolades that DBS has just won.

Role of Finance in Economic Development

8.     The development of our financial sector has been crucial in supporting Singapore’s economic development and Singapore’s growth over the years, channelling domestic savings and international capital flows to productive investments in key economic sectors.

a) DBS has contributed – from financing industrialists to set up in Singapore in the 1960s and 1970s, to providing individuals and corporates with the full suite of banking services today.

9.     Looking back, we must not forget the lessons that the Asian and Global Financial Crises taught us – the importance of effective financial intermediation to a well-functioning economy, and the consequences when financial flows became decoupled from underlying economic needs.

a) In the Asian Financial Crisis, the absence of proper risk management practices, coupled with the lack of sound regulation and supervision in Asian emerging economies resulted in imprudent lending practices and structural imbalances.

b) Similarly, excessive risk taking and the absence of proper risk management in major financial institutions in the most developed markets of the US and Europe were major factors leading to the Global Financial Crisis. The situation was exacerbated by the use of financial engineering to bundle and spread risks across the financial system through complex derivatives that added little real economic value. As one economist said to me recently, financial crises is not just a developing country syndrome, it can also happen in the most developed markets and that no one is invulnerable.

10.     The vitality of the financial sector and the development of the real economy are deeply intertwined.   Effective intermediation of capital to channel savings to productive investments enables the real economy to grow, to create jobs for people, and to fund long-term investments in social and physical infrastructures.

Supporting Asia’s Growth

11.     Singapore’s financial sector and DBS is in the position to support the region’s development as the economic centre of gravity shifts back to Asia. Earlier you heard Piyush spoke about some of the major trends and, in fact, in this year’s Budget, I spoke of three major trends that we must all take into account. One is the shift in the economic centre of gravity back to Asia. Second, the rapid advances of technology especially in the information communications technology, in AI, in the artificial intelligence, and the changing demographic patterns not only in Singapore but across the whole of Asia and in fact, across the whole world.

12. Now let me touch on the shift of the economic center of gravity first. The IMF projects Asia to lead global growth at an average rate of about 6.4% from now till 20233.

a) Within Asia, China and India have the largest populations in the world, and are emerging rapidly. 

b) ASEAN itself is a region of opportunities, with growth of the ASEAN – 5 expected to be about 5% till 20234.

i. The growth is largely driven from the ASEAN middle class, which is expected to more than double in size by 2030, from 2015 levels.

ii. It is projected that based on current growth rates, ASEAN is expected to become the fourth largest single market by 2030, behind the EU, China and US.

13.     We are fortunate to be strategically located in a region with strong growth potential. Let me touch on three areas where we can support Asia’s development.

Infrastructure Financing

14.     First on infrastructure financing.  For Asia to continue growing, the region must invest in infrastructure needs.

Done well, developments in infrastructure can help boost productivity and economic competitiveness, lift the long-term potential of the region, and create a better living environment for our people.

15.    The ADB5 estimates that to maintain Asia’s growth momentum, infrastructure investment needs will total US$26 trillion from 2016 to 2030, or $1.7 trillion per year.

Traditionally, much of the responsibility for infrastructure investment has fallen on the government.

But given the size of these needs, it is not possible for any single government to fund this fully. Nor any single bank. We need to crowd in private capital from all sources to accelerate infrastructure development in the region.

16.     Singapore set up the Infrastructure Asia office in April 2018 to harness the collective network and capabilities of public sector agencies and private sector firms, and partner key stakeholders across the region to explore better ways to meet Asia’s infrastructure needs.

a) The office seeks to bring together the demand or project side, and the supply or financing side to facilitate the matching of demand and supply.

i. One platform to do this is the Asia-Singapore Infrastructure Roundtable, which will be held in October this year.

ii. This will complement regional platforms set up by multilateral development banks, such as the Asia Infrastructure Forum, to bring industry practitioners together to match infrastructure needs with financing opportunities.

Enterprise Financing

17.     The second area is enterprise financing. Digital technologies are catalysing the development of innovative business models and products in and across many sectors.

18.     The growing middle class and young population in Asia, with increasing access to digital technology, is drawing many innovative enterprises to provide digital solutions to meet their needs.

a) A recent survey on the e-economy6 by Google and Temasek shows that South East Asia is the world’s fastest growing Internet region.

b) A study by Microsoft7 projects that the share of Asia Pacific GDP derived from digital products or services created through digital technologies will increase from 6% in 2017 to 60% in 2021.

19.     At Budget 2018, I announced that Singapore is positioning itself as a Global-Asia node of technology, innovation and enterprise. Singapore is investing significantly in research, innovation and enterprise development.

As a major financial centre, with a wide range of financial institutions providing a variety of funding, Singapore is a strong base to serve the needs of innovative enterprises, and to seed the growth of the next-generation of Asian growth companies.

20.     MAS has revised regulations to facilitate the activities of venture capitalists, and to give finance companies greater scope to support small and medium enterprises. We are also working with industry players to establish private market funding platforms to enable growth companies to gain better access to a wider network of investors.

Adoption of Digital Financial Services

21.     So, now let me touch on the third area, which is the adoption of digital financial services.

22.     Financial institutions can leverage on technology to improve efficiency through the adoption of e-payments. This provides convenience for consumers and businesses while reducing transaction costs.

23.    In Singapore, MAS is working with the industry to enhance the inter-operability of the various e-payment systems in the market to encourage wider adoption. Let me give a recap of the progress we have made.

a) In 2016, we introduced the Unified Points of Sales (UPOS) terminals to integrate multiple payment modes into one system. This improves efficiency and makes payments more convenient for the consumer.

b) Later this year, we will be introducing the SG Quick Response (QR) code for optical mobile payment. This is a standardised QR code which was developed by an industry task-force co-led by MAS and IMDA, and will be adopted by all service providers for scan-and-pay.

With the SG-QR, merchants will be able to accept all forms of e-payments via a single low-cost QR sticker. Consumers, whether residents or tourists, will not have to hunt for separate QR stickers that support only a particular e-payment scheme. Just one sticker is needed to cover all different payment modes. So, instead of one click, we have one sticker.

24.     Apart from improving efficiency in channelling financial flows, financial institutions can also adopt technology to deepen access to financial services for Asia’s rising middle class.

a) A 2016 Mckinsey8 study showed that South and South East Asia are amongst the regions with the highest number of financially excluded, and the adoption of digital financial services in these regions could potentially provide 470 million individuals access to a financial account while generating new deposits of up to US $1.5 trillion.

25.    In addition, the use of technology and innovation can help to facilitate financial inclusion, which is a key priority under our ASEAN chairmanship.

a) One such initiative is the ASEAN Financial Innovation Network (AFIN), a cloud based platform facilitating innovation and collaboration between financial institutions and FinTechs.

b) Established by the ASEAN Bankers Association and the World Bank’s International Finance Corporation, we hope that AFIN will accelerate the adoption of digital solutions in ASEAN, which will in turn improve access to financial services for the under-served.

26.    In Singapore, we are also mindful not to leave behind certain segments of the society in our efforts to digitalise.

a) The government is taking the lead to create a digitally inclusive society through the Digital Inclusion Programme run by IMDA.

b) As the People’s Bank, POSB plays an active role in these efforts through its collaboration with IMDA on various initiatives, including the development of training courses with community partners to familiarise senior citizens with digital banking services. I encourage DBS and POSB to continue these digital inclusion efforts.

Conclusion

27.     Let me conclude. The prospects for growth in Asia is good and our financial sector and DBS is well poised to grow together with the region. However, we must not forget the lessons learnt from the past crises and allow complacency to set in.

28.     As we grow and develop our financial sector to serve the needs in the real economy, we must take proper risk management. At the macro-level, to maintain our resilience, we must also be prepared for major disruptions in the global financial markets. Over the years, we have evolved 3 layers of safety nets:

a) At the national level, financial institutions must be responsible for implementing prudent risk management practices, underpinned by sound regulations and effective supervision by regulators.

b) At the regional level, the ASEAN+3 financial cooperation process was established in 1999 to strengthen our economic and financial resilience through initiatives such as:

i. The Chiang Mai Initiative Multilateralisation, as the regional safety net to provide funding support for members to meet short-term and temporary liquidity needs; and,

ii. The ASEAN+3 Macroeconomic Research Office, as the focal point for regional macroeconomic surveillance.

c) At the global level, the multilateral support offered by the IMF provides an effective complement to regional safety nets and national safety nets given the increasing economic linkages between countries.

29.     We must continue to strengthen these safety nets, and support the growth and development of economies all around Asia, and the world.

In this changing economic environment, with the sweeping wave of technological advancements, the possibilities of what we can achieve is only limited by our imagination.

a) As the renowned American astronomer, Carl Sagan, once said “Imagination will often carry us to worlds that never were. But without it we go nowhere.”

b) Together, let us push the boundaries of our imagination and re-imagine how we can move ahead in this regional economic, financial and digital landscape.

30.    I wish all of you a very fruitful conference, and DBS success in the next fifty years and beyond. Thank you.

1 Global Financial Centre Index, 2018.
2 World’s Safest Banks, Global Finance Magazine, 2017.
3 IMF World Economic Outlook, April 2018.
4 IMF World Economic Outlook, April 2018. The ASEAN – 5 economies in the IMF forecast refers to Indonesia, Malaysia, Thailand, Vietnam and Philippines.
5 Meeting Asia Infrastructure Needs, Asia Development Bank, 2017.
6 e-Conomy SEA, Temasek Holding and Google, 2016.
7 Unlocking the Economic Impact of Digital Transformation in Asia Pacific and New Zealand, Microsoft in partnership with IDC Asia/Pacific, 2018.
8 Digital Finance for All: Powering Inclusive Growth in Emerging Economies, Mckinsey Global Institute, 2016
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Last Modified on 13/07/2018