Monetary Authority of Singapore Annual Report 2012/2013
Chairman's  Message

The global economy is on a firmer footing compared to a year ago. The repair of bank and household balance sheets has progressed, most notably in the United States. Central bank actions, including unconventional monetary policies, have reduced the risks of financial instability and a sharp economic recession. A gradual, if modest, recovery in the G3 economies can now be expected in the second half of 2013, supported by a steady improvement in the housing and labour markets in the US and the short-term effects of concerted monetary and fiscal stimuli in Japan. China is expanding at a more moderate pace, but remains an important source of global demand growth. The rest of Asia should also be supported by resilient domestic demand and increasing intra-regional trade.

Not withstanding this improved global picture, we have not returned to the path of normal growth, especially in the advanced economies. There is a critical need to reduce an over-reliance on monetary policy and achieve greater progress in structural reforms, so as to promote lasting, self-sustaining growth. However, recurring volatility is likely in financial markets during the transition to more normal liquidity conditions and interest rates over the medium term.

Against this backdrop, the Singapore economy is expected to continue on a moderate expansion path of 1—3% this year. The gradual improvement in the global economy will provide some upside to Singapore’s external-oriented industries, while domestic demand is likely to stay resilient.

Our labour market remains tight. This is supporting wages, as well as a further pass-through of cost pressures. MAS Core Inflation, which excludes the costs of accommodation and private road transport, could rise moderately in the latter half of this year. CPI-All Items inflation will ease this year, reflecting the gradual slowdown in the increase in imputed rentals on owner occupied accommodation, and the recent correction in COE premiums due to the package of motor vehicle policy measures.

MAS tightened its monetary policy stance in April  2012  by  increasing slightly the slope of the S$ nominal effective exchange rate (S$NEER) policy band, with no change to the level at which it was centred. This was a measured step, aimed at averting a build-up of price pressures, anchoring inflation expectations and keeping growth on a sustainable path as the economy restructures. The policy stance was maintained in October 2012 and April 2013.

We recognise that inflation will generally be higher than the historical norm during the medium-term transition towards a higher-productivity economy. However, MAS remains vigilant in preventing cost pressures from escalating and ensuring that consumer price inflation stays moderate.

Asset market inflation, especially in housing, remains an important focus for MAS. Low global interest rates put pressure on asset prices and credit growth, with potential knock-on effects on both consumer price inflation and financial stability. MAS has applied targeted macro prudential tools to cool investment demand in the property market, complementing monetary policy in promoting sustainable economic and financial conditions. The measures, together with coordinated actions by other Government agencies, have helped to stabilise the market. We continue to monitor their effects.

In keeping with international developments in financial regulation following the recent global financial crisis, MAS has reviewed and refined its rules so as to strengthen our framework for financial stability and ensure robust protection of depositors, insurance policy holders and consumers of financial services. With the passing of the MAS (Amendment) Bill by Parliament earlier this year, MAS has additional resolution powers and a broader range of regulatory options to deal with failed financial institutions, as well as share information with foreign resolution authorities, where necessary. In addition, we have reviewed the framework for the issuance of securities by MAS.

We launched the Financial Advisory Industry Review or FAIR in March 2012, aimed at enhancing the quality of financial advice and efficiency in the distribution of life insurance and investment products. FAIR reviewed areas such as operational standards amongst financial advisory firms, competence and remuneration of representatives, and the transparency and accessibility of products to customers.

We have also strengthened oversight of the fund management industry in several respects. The enhanced fund management regulatory regime introduces more stringent admission criteria for fund managers such as enhanced capital and competency requirements, as well as higher standards of business conduct.

In the banking system, MAS has announced changes to the Qualifying Full Bank (QFB) programme aimed at encouraging foreign banks to deepen their roots in Singapore while strengthening Singapore’s financial stability. For a very small number of QFBs determined to be significantly rooted, MAS may grant an additional 25 places of business, of which up to 10 being branches, as part of an overall package negotiated under free trade agreements (FTAs) with these QFBs’ home countries. MAS will consider a range of quantitative and qualitative attributes that demonstrate a QFB’s ability and willingness to support Singapore’s financial stability and development, in determining if the QFB is significantly rooted. In addition, MAS will require existing QFBs that are important to the domestic market, as well as new QFBs offered under future FTAs, to locally incorporate their retail operations at minimum, so as to enhance depositor protection.

In line with measures by regulatory authorities in major international centres, MAS initiated a review of banks’ financial benchmarks setting processes in July 2012. Upon conclusion of the review, MAS took supervisory actions against several banks for governance and risk management deficiencies. These actions include imposing additional statutory reserves, and requiring banks to plug identified deficiencies and conduct independent reviews to ensure the robustness of enhanced risk management processes and internal controls. Changes to the benchmarks setting processes will also be rolled out progressively over 2013 to strengthen the governance and the design of financial benchmarks and their setting processes.

Singapore has been active in global efforts to combat money laundering, terrorism financing and proliferation financing. We operate a rigorous AML/CFT regime, which has been well rated and assessed by the Financial Action Task Force (FATF) to be aligned with international standards. Consistent with the revised FATF recommendations, Singapore criminalised the laundering of proceeds from serious tax crimes from 1 July 2013. We will continue to strengthen Singapore’s framework for international cooperation, and ensure that our financial system is not used as a harbour or conduit for illicit assets.

Overall, financial sector growth remains resilient, with activity seen across most segments of the industry. One key development was the launch in May 2013 of Renminbi (RMB) clearing services in Singapore by the Industrial and Commercial Bank of China (ICBC) Singapore branch. This followed the signing of an MOU between MAS and the People’s Bank of China on RMB Business Cooperation, which facilitates the use of RMB in Singapore for cross-border trade and other economic transactions and enhances access to RMB in the region. On 28 May 2013, MAS also opened its Beijing Representative Office. Together, the collaboration between MAS and the Chinese central bank and financial authorities will deepen financial and economic cooperation between China and Singapore, and strengthen regional financial markets.

As Singapore continues to develop as a key financial centre in the Asian time zone, MAS will support financial institutions in efforts to develop a strong core of Singaporean financial sector professionals and leaders in finance. These initiatives aim to nurture younger Singaporean entrants with opportunities to be mentored by senior leaders and to broaden their horizons across various functional roles; to give Singaporean finance professionals the opportunity to deepen specialist skills; and to help more mid-career Singaporeans take on regional and international postings. A solid core of Singaporean specialists and leaders will be critical to fostering and sustaining a strong financial sector workforce over the long term.

Mr Lucien Wong, Chairman and Senior Partner, Allen & Gledhill, stepped down from the MAS Board of Directors on 28 February 2013. He had served on the Board since 1 January 2006. On behalf of the Board and Management of MAS, I thank Mr Wong for his active and invaluable contributions. I also welcome Mr Quek See Tiat as a new member of MAS’ Board of Directors.


Tharman Shanmugaratnam