Financial Sector Remains Resilient Despite Slowdown;
MAS' efforts to reform the sector on track and reaping results
Singapore, 24 August, 1998.. The Managing Director of the Monetary Authority of Singapore, Mr Koh Yong Guan, today said that Singapore's financial sector remains resilient in the face of the economic slowdown.
Speaking at a press conference to release MAS' annual report for financial year 1997/98, Mr Koh said: "The financial position of the local banks remains sound despite the decline in profitability. We have monitored the exposure of the local banks to the region as well as to the property sector in Singapore and we are comfortable with their individual positions."
"Moody's Investor Services has ranked Singapore banks seventh in the world and first in Asia in terms of financial strength," Mr Koh said.
"The financial sector will continue to face a rough ride in the short to medium term because of the regional economic difficulties. But it will remain resilient because of its strong foundation. This resilience was not achieved overnight, but is the result of many years of careful husbandry," he said.
"Our focus is really on the medium to long term, when the economic situation in Singapore and the region improves and a transformed financial landscape offers new opportunities for growth," said Mr Koh. "This is why we are earnestly pressing on with the financial sector reform effort," he said.
Positioning Singapore as a World-Class Financial Centre
Mr Koh said that MAS' vision was to help make Singapore a world-class financial centre, offering a wide range of services and products. The key strategic thrusts were to further develop the asset management industry, deepen and broaden the capital markets, and build an internationally competitive banking industry.
"To achieve this vision, MAS is playing a more proactive role in promoting the financial sector as well as taking a more strategic approach to developing our markets, " he said. "Indeed, we have met many financial institutions in Singapore and from around the world to explore opportunities for doing business here. Of these, we have a pipeline of about 100 projects that could possibly be committed over the next 2-3 years, " said Mr Koh.
"These institutions are positioning themselves for opportunities when the recovery comes. They have been attracted to Singapore because of our sound fundamentals and conducive regulatory environment. They have also been encouraged by the recent initiatives that have been announced to develop the financial sector," said Mr Koh.
In addition to continuing to make marketing trips to the US, Europe and Asia, MAS is planning to set up overseas promotions offices in London and New York.
Mr Koh said that the financial sector reform process was progressing well. "In undertaking this process, we have been actively consulting the industry for views. The recommendations of the three subcommittees under the Financial Sector Review Group, namely the Banking Disclosure Committee, the SES Review Committee, and the Corporate Finance Committee, have been very constructive and provided much valuable input into the reform process," he said.
"As a follow-up to the SES Review Committee, we have constituted a Committee on Governance of Exchanges. The Committee will study international trends in exchange ownership and operations, establish the most suitable governance model for SES and SIMEX, and recommend an appropriate transition path from the current situation," said Mr Koh. The Committee is expected to make its preliminary recommendations by mid-October and final recommendations by mid-December.[The terms of reference and composition of the Committee are attached.]
The reforms to-date have covered a range of financial markets and industries. Some of the key initiatives are as follows:
- raised bank disclosure standards
- halved minimum cash balance to 3%
- launched real time gross settlement system for interbank payments
- liberalised investment limits on Singapore general insurance and non-investment-linked life insurance products
- reduced paid-up capital requirement for captive insurers
- extended 10-year tax exemption for income from offshore marine hull and liability business
- targeted to place out $25 billion of GIC funds for external fund managers to manage over next 3 years; year to-date, $3 billion has been committed and another $3 billion is under consideration for outplacement
- revamped CPF investment scheme and liberalised non-CPF unit trusts to encourage investment in unit trusts
- reduced financial requirements for foreign companies to set up as investment advisers in Singapore
- enhanced tax incentives for fund managers and unit trusts
Equity and Futures Markets
- relaxed conditions for foreign-owned companies to list in S$ on the SES
- approved launch of new equity derivatives on SIMEX, namely Singapore, Malaysian, and Thai stock index futures
- issued a new best practices guide on audit committees and securities dealings
- renewed tax holiday for SIMEX for another 5 years
- issued $1.5 billion of 10-year Singapore Government Securities (SGS) to extend benchmark yield curve
- allowed foreign entities of good standing to issue S$-denominated bonds in Singapore
- allowed banks to transact S$ repurchase agreements in Singapore Government Securities (SGS) of up to $20 million with non-residents
- introduced tax incentives to encourage origination and trading of debt securities in Singapore
MAS was working towards the implementation of several other reforms that have been announced, including the adoption of a risk-focused approach to bank examination, increasing the issue of SGS so as to create a larger free float of SGS that can be traded in the secondary market, and progressively deregulating the commission structure of the stockbroking industry.[A comprehensive set of tables on the key financial sector reform initiatives implemented to-date and being currently worked out is attached.]
Year 2000 Readiness On Track
As part of the effort to develop Singapore as a world-class financial centre, MAS has engaged Arthur D Little to undertake a broad review of the IT infrastructure for the financial sector. Mr Koh said that one of the one concerns in this area was to prepare the financial sector for Year 2000. "Indeed, getting ready for Year 2000 is one of the biggest immediate challenges facing the financial industry throughout the world," he said.
Mr Koh said that MAS was taking decisive steps to co-ordinate industry-wide Year 2000 compliance. Singapore's financial sector had been preparing for Year 2000 since early 1997.
"We are confident that the financial system as a whole will be resilient in the transition to Year 2000. At the same time, we have mapped out supervisory measures to restrict the activities of those who cannot meet our standards for Year 2000 readiness," Mr Koh said.
Mr Koh said that a series of Year 2000 readiness tests has been scheduled for the various industries. The Stock Exchange of Singapore had just successfully completed a test run on its trading system for Year 2000 readiness on 23rd August. SIMEX was scheduled to undergo a test in October and MEPS in the fourth quarter of this year. The entire financial sector will be undergoing a Year 2000 readiness test in the first quarter of 1999. "This landmark test will help MAS to identify weaknesses in the system as well as the financial institutions that require extra assistance and supervision," said Mr Koh.[Details of MAS' Year 2000 Readiness Plan are contained in a separate media release Financial Sector Expects Smooth Transition to Year 2000.]
REVIEW OF THE FINANCIAL SECTOR KEY INITIATIVES IMPLEMENTED TO-DATE
|Equity and Futures Markets|
REVIEW OF THE FINANCIAL SECTOR KEY INITIATIVES CURRENTLY BEING WORKED OUT
|Equity and Futures Markets|
COMMITTEE ON GOVERNANCE OF EXCHANGES
The vision is for SES and SIMEX to become leading exchanges in Asia, well-positioned for:
- capturing co-operation opportunities with other international exchanges,
- offering maximum investor choice and value in products and services, and
- enabling the achievement of the broader strategic objective of making Singapore a world-class financial centre.
Terms of reference
The Committee on Governance of Exchanges will:
- study international trends in exchange ownership and operations;
- establish the most appropriate models for the ownership, functional organisation and governance of SES and SIMEX; and
- recommend the best mechanics for the transition from the current models to the proposed models, including timing and sequence of changes.
List of committee members
|Tharman Shanmugaratnam||Deputy Managing Director, MAS|
|Lim Choo Peng||President, SES|
|Ang Swee Tian||President, SIMEX|
|Financial Market Participants|
|Elizabeth Sam||Dy Chairman, SIMEX|
|Goh Yew Lin||Executive Director, GK Goh|
|Low Check Kian||MD, Merrill Lynch|
|Seck Wai Kwong||GM, Lehman Brothers|
|Philip Pillai||Senior Partner, Shook Lin & Bok|
|Lucien Wong||Partner, Allen & Gledhill|
|Alan Lim||MD, Prudential Portfolio Managers|
|Seow Kok Leong||Senior Director|
Securities and Asset Management/ Financial Futures Division
|Tan Kim Kway||Senior Director|
Corporate Finance Division
The committee will submit its preliminary recommendations by mid-October, and a final report by mid-December 1998.