Changes to the Capital Adequacy Ratio for Singapore-incorporated banks
Singapore, 19 September 2000 ... The Monetary Authority of Singapore (MAS) announced today changes to the Capital Adequacy Ratio (CAR) for Singapore-incorporated banks.
From 30 September 2000, the minimum Tier 1 CAR component for Singapore-incorporated banks will be lowered from 10% to 8%, while the total CAR requirement will remain unchanged at 12%. The balance of the total CAR requirement (i.e. up to 4%) may comprise Upper Tier 2 capital. The components of Upper Tier 2 capital are unchanged. The changes will also apply to financial holding companies.
MAS may also, on a supervisory basis, require individual banks to maintain higher capital than the regulatory minimum when necessary, in line with the move away from a 'one size fits all' approach to one that is risk-focused and institution specific.
Singapore's CAR requirements were last modified in December 1998 to reduce the minimum Tier 1 capital requirement from 12% to 10%, and to allow for Upper Tier 2 capital to be used as regulatory capital for the remaining 2%. The new CAR requirements in Singapore will continue to exceed the current Basel Committee standard of 8%, including a minimum 4% Tier 1 capital requirement, as well as that observed in other major financial centres.
In announcing these changes, Mr Tharman Shanmugaratnam, Deputy Managing Director, MAS said, "Now that we are past the worst of the Asian financial crisis, MAS is ready to allow Singapore banks further flexibility in managing their capital. Each of the banks has Tier 1 capital that is well above the existing minimum requirement. The new CAR requirements will enable them to plan ahead, taking into account their assessments of funding opportunities, the possible uses for their capital and the risks they potentially face in the future business environment."