Annual Report 2001/2002

Growth and Performance of the Financial Sector

In line with international trends, 2001 saw a continued consolidation in the number of financial institutions in Singapore. (See Table 1.) Besides the consolidation of foreign banks with operations in Singapore, the five local banking groups also merged into three groups in 2001. In addition, the number of insurance companies fell from 151 to 144. In the stockbroking sector, the number of Singapore Exchange Securities Trading Ltd (SGX-ST) member companies fell from 35 to 27 while the number of non-SGX-ST member companies increased by six.

With the global economic slowdown, financial sector performance was mixed in 2001. The insurance and asset management sectors experienced relatively robust growth while domestic and offshore lending activities remained weak. Economic uncertainty fueled strong trading in derivatives, whereas stockbroking, foreign exchange and investment advisory activity remained subdued. The corporate debt and Singapore Government Securities (SGS) markets continued to grow.

Financial sector value-added grew at a more moderate 2.2% in 2001 compared with 4.6% in 2000. (See Table 2.)

Table 1 Table 2

Chart 7

Total domestic assets of banks, merchant banks and finance companies rose 9.6% to reach $407 billion as at end-2001. (See Chart 7.) Domestic loan growth remained weak at 3.0%. With the poorer business environment, commercial banks increased their investments in securities including SGS, resulting in a sharp 59.0% increase in their total holdings of securities and equities2.

On the liabilities side, total deposits of non-bank customers with banks and finance companies recovered, to register a modest growth of 4.4% in 2001, after a 2.0% drop in 2000.

Domestic interbank transactions contracted with the weaker economic environment, bank consolidation and easier liquidity. Domestic interbank assets of commercial banks fell 36.0% from $42.5 billion as at end-2000 to $27.1 billion at end-2001. Domestic banking units also reduced their net foreign liabilities by about half, from $11.5 billion at end-2000 to $5.7 billion at end-2001. This was mainly due to a reduction in their net foreign interbank liabilities.

The Asian Dollar Market (ADM) remained weak during 2001, dampened by the slowdown in global economic activity. (See Chart 8.) Total assets of the ADM3 fell 3.1% to US$471 billion at end-2001 after recovering by 1.3% in 2000. Loans to non-bank customers fell by 11.3%, although the rate of decline continued to slow, as banks
diversified their loan portfolios. Interbank assets and liabilities on the ADM contracted by 2.6% and 1.7% respectively in 2001.

Chart 8

Commercial banks’ operating profits during the year were based by gains from investment and trading of securities and derivatives. However, given the poorer economic conditions and outlook, both local and foreign banks substantially increased their provisions. This, together with other one-off extraordinary items, dampened their net profits before tax.

Local banks’ non-performing loans (NPL) as a percentage of their total loans continued on a downtrend over 2001. Their NPL ratio fell to 8.0% at end 2001, compared with 9.1% in 2000. (See Chart 9.)

The insurance sector experienced relatively robust growth in 2001 due primarily to the life insurance segment. (See Chart 10.) Single premium life insurance saw significant growth, growing 170.0% to $9 billion. This was boosted by further liberalisation of the Central Provident Fund Investment Scheme in January 2001, which released funds from the Ordinary Accounts and Special Accounts for investments.

The general insurance sector also performed well, underpinned by demand from both domestic and offshore business. In particular, there was an increase in aviation insurance premium rates following September 11, as well as an increase in health and personal accident insurance.

Reflecting the downturn in global equity markets, 2001 was a lacklustre year for the Singapore stock market. The Straits Times Index ended 2001 at 1623.6, down 15.7% from the previous year, and turnover volume was down 5.9%. (See Chart 11.) During 2001, there were 36 new listings on SGX-ST, raising a total of $485.7 million in funds. As at end-2001, the number of companies listed on the SGX-ST Main Board and SESDAQ were 396 and 107 respectively, with a total market capitalisation of $449.2 billion, up 7.5% from the previous year.

Chart 9

Chart 10

Chart 11

In contrast, derivatives trading grew strongly in 2001, benefiting from the more uncertain economic environment. (See Chart 12.) Trading volume reached an all-time record of 31 million contracts, surpassing the previous high in 1998. Record high trading volume was seen in several contracts, in particular the Eurodollar futures, MSCI Taiwan Index options and futures and the Singapore dollar Interest Rate futures contract.

In contrast, foreign exchange activity was subdued, reflecting ongoing consolidation and weak activity in regional currency markets. (See Chart 13.) Nevertheless, Singapore maintained its position as the fourth largest foreign exchange centre in the world4. (See Table 3.)

Chart 12

Chart 13

Table 3

The Singapore asset management industry has also been growing steadily, and despite weakened market conditions, total Assets Under Management (AUM) has seen good growth. As at end-2001, total assets managed by Singapore-based financial institutions was $307.0 billion. This comprised $180.7 billion of discretionary assets managed in Singapore, and $126.3 billion of non-discretionary assets. This represents an increase of $30.8 billion or 11.0% over end-2000. (See Chart 14.) The number of investment professionals in the asset management industry has also increased significantly by 10.0% to 1,114.

The Singapore debt market continued to grow strongly in 2001 with total corporate debt issuance witnessing a 43.0% increase from $50.0 billion in 2000 to a record $72.0 billion in 2001. Total outstanding corporate debt volume also increased 63.0% to $80.8 billion. Non-Singapore dollar-denominated bonds continued to dominate corporate debt issuance volumes in Singapore, with 649 non-Singapore dollar issues registering a total of $50.0 billion, compared with 801 Singapore dollar-denominated issues registering a total of $22.0 billion. (See Chart 15.)

Chart 14

Chart 15

The market continued to see a diverse range of issuers tapping the Singapore dollar-denominated debt market.

In the SGS Market, gross issuance of SGS treasury bills and bonds during the year increased to $44.4 billion and $14.2 billion respectively, compared with $41.9 billion and $12.1 billion in the previous year. (See Chart 16.) SGS yields remained fairly stable during the first half of 2001 but fell across the curve during the third quarter on strong demand for SGS, over concerns of a worsening global economy. However, the prospects of an improving global economy at the end of last year exerted downward pressures on SGS prices. This steepened the SGS yield curve, bringing the 1-year yield down from 2.6% at end 2000 to 1.2% at end 2001 and softening the 10-year yield from 4.1% to 4.0% over the same period. (See Chart 17.)

Chart 16

Chart 17

Reflecting the rapid development of and increased activity in the SGS market, average daily turnover increased by 136.0% to $1,923 million in 2001. (See Chart 18.) Similarly, the average daily SGS repo turnover for 2001 also more than trebled to $1,799 million from $543 million in 2000. (See Chart 19.)

The financial sector’s performance is expected to improve as the economy recovers.

Chart 18

Chart 19

2 Part of the increase in commercial banks’ holdings of securities and equities was technical, reflecting acquisitions by two major local banks.
3 Includes merchant bank Asian Currency Units.
4 Bank for International Settlements (BIS) Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity 2001.


[Growth and Performance] [Domestic Assets of Banks] [Asian Dollar Market] [Insurance Sector] [General Insurance Sector] [Singapore Stock Market] [Derivatives Trading] [Foreign Exchange] [Asset Management] [Debt Market] [SGS Market]

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