ANNUAL REPORT 2002 / 2003


Corporate Debt Market

The corporate debt market has also continued to grow, with total outstanding volume rising by 10.4% in 2002 to S$89.2 billion at year-end, as both international and local issuers tapped the market across all maturities for funds. However, the volume of new corporate debt issuance declined by 48.1% to S$37.4 billion at end 2002 after a record year in 2001, reflecting the global economic slowdown and lower funding requirements. (See Chart 6.)  

Despite the slowdown in issuance, the bond market continued to gain in breadth and depth, as indicated by wider product variety as well as issuer and investor base. In the Singapore Dollar market, structured debt continued to grow and accounted for 56.0% of market volume in 2002 compared with 47.0% in 2001. Also, 2002 was a record year in the volume of issuance and number of issuers from foreign entities. The volume issued saw a strong 75.7% growth to S$3.2 billion and accounted for 17.7% of the total Singapore Dollar issuance. (See Chart 7.)  

Equities and Futures Market

In line with the global equity market downturn, Singapore’s equity market continued to be weighed down by bearish market sentiments. The joint market capitalisation of Singapore Exchange’s (SGX) Mainboard and SESDAQ fell 13.0% to S$291.3 billion at end 2002. Total turnover fell 9.9% in value terms in 2002, but rose 20.2% in volume terms.

Reflecting the volatility in global markets, trading activity in the derivatives market was robust, with average daily turnover in SGX’s derivatives market growing 5.6% in 2002. Derivatives trading on SGX hit a high of 33 million contracts for 2002 as a whole amidst the heightened uncertainties in the global financial markets. Trading activity was especially strong in the Eurodollar futures, Morgan Stanley Capital International

(MSCI) Taiwan Index futures and Nikkei 225 Stock Index futures. Several new products were launched on SGX’s derivatives market in 2002: the full-sized Japanese Government Bond futures and options, the MSCI Japan Index futures, six additional Single Stock futures and Middle East Crude Oil futures.

Treasury Market

Singapore maintained its position as a global treasury centre with several global players consolidating their foreign exchange (FX) and derivatives business (in the Asian time-zone) in Singapore. Going forward, such consolidation and cost rationalisation will continue to underpin growth in the FX market.

Daily FX trading volume averaged US$96.0 billion in 2002, virtually unchanged from the previous year. In 2003, however, daily average volumes surged in the first quarter to US$112.9 billion. (See Chart 8.)

Asset Management

The asset management industry expanded steadily against a backdrop of weak global financial markets. Total assets managed by Singapore-based financial institutions grew 12.0% in 2002, to S$343.8 billion, comprising S$183.4 billion of discretionary assets, and S$160.4 billion of non-discretionary assets. (See Chart 9.)  

The increase in Assets Under Management (AUM) can be attributed to various factors: transfers of regional portfolios to Singapore for management and continued expansion of management and advisory activities for the pan-Asian portion of global mandates. Singapore’s asset management industry has expanded in depth and breadth. In addition to portfolio management and research, asset managers have further centralised operations such as regional trading and back office functions in Singapore.

Corporate Finance Activity

Last year proved a difficult one for corporate finance activity. Globally, merger and acquisition activity declined both in deal numbers and value. In Singapore, this decline was reflected in a fall in fee income from merger and acquisition and other financial advisory activities. However, the fall was somewhat cushioned by a rise in fee income from underwriting activity, boosted by an increase in the amount raised through new listings on the SGX’s Mainboard and SESDAQ. Three major listings are worth highlighting – MobileOne’s S$740.8 million listing, and the launch of two Real Estate Investment Trusts (REITs) products by CapitalMall Trust and Ascendas.  

Insurance Activity

In the global insurance industry, falling equity prices, low bond yields and worsening credit losses have compounded the existing problems of underpricing and legacy claims, such as asbestos, which have resulted in large underwriting losses.

In Singapore, insurers also face some of these challenges, albeit to a smaller degree. After three years of rapid growth, the insurance industry experienced a moderate decline in activity, with premiums falling by 9.2% to S$16.7 billion. The life insurance industry reported a significant decline in single premium business as the effects of the liberalisation of the CPF Investment Scheme in January 2001 tapered off. General insurance fared better with premiums collected growing 23.7% to reach S$4.7 billion. (See Chart 10.)


Financial Stability

The Asian financial crisis of the late 1990s came as a surprise to the central banking and regulatory community. Since then, much has been done to better anticipate financial sector problems. These include initiatives such as the Financial Sector Assessment Programme (FSAP) by the International Monetary Fund (IMF) and World Bank, which seeks to assess the potential sources of vulnerability in domestic financial systems, and the formation of the Financial Stability Forum to undertake global financial surveillance.

Several central banks have established dedicated teams to monitor financial stability issues. These teams work closely with national financial sector regulators to identify emerging risks and vulnerabilities in their financial systems.

These initiatives stemmed in part from the recognition that a primary cause of financial crises in recent years is weaknesses in a country’s financial system. Equally important is the recognition that financial systems and economies are now closely intertwined, and shocks are transmitted rapidly across countries. Promoting financial stability to meet these challenges has become a priority amongst regulators and central banks, including the MAS.

In 2002, Singapore’s financial sector faced the challenges of increased geopolitical uncertainties, volatile financial markets, and weak economic activity both globally and domestically. In turn, the banking industry was badly affected by weak loan demand while the insurance industry has suffered both globally and in Singapore, with weak financial market prices eroding solvency margins and returns to policyholders. Securities firms have similarly suffered from falling equity market volumes and subdued investor confidence.

Despite these challenges, Singapore’s financial sector has remained resilient. This resilience stems from three key factors. One, the strong capital position of the financial institutions has cushioned falling profits. Two, the incidence of credit defaults has not increased drastically because the balance sheets of the end-customers, especially those of the households, have remained robust. Three, the increased diversification of activities in the financial sector has also provided a stabilising influence.

In particular, the resilience of the banking sector is underpinned by the strong capital and liquidity position of banks which has helped to absorb any increases in non-performing loans and pressures on profits. In addition, the adverse impact of the weak environment on non-performing loans and profits was also limited.

Despite falling overall loan volume and interest rates, banks have generally managed to maintain their net interest margins in 2002 through lower deposit rates. The sustained demand for loans from households has also helped partially offset the decline in corporate loan demand. Finally, the impact on non-performing loans has been limited because banks have judiciously managed their domestic and overseas exposures, and credit default in the household sector has remained low.  

A More Resilient Financial Sector Structure of Financial Sector Financial Market Activity
Singapore Government Securities Market  Corporate Debt Market

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