29 Jun 2001...The Monetary Authority of Singapore announced today the second phase of its banking liberalisation programme. Speaking at the annual dinner of the Association of Banks in Singapore, Deputy Prime Minister and MAS Chairman Lee Hsien Loong said that the measures will help "strengthen our local banks through competition, provide Singaporeans with quality banking services, and enhance Singapore's position as an international financial centre".

DPM Lee noted that financial institutions, investors and regulators have adjusted well to the first package of measures implemented in 1999, giving MAS the confidence to proceed with the second phase of liberalisation. He said that the latest round of measures "represents a substantial opening up of the industry". It comprises two main components: freeing up entry to the wholesale market, and enhancing competition in retail banking.

Freeing Up Entry to the Wholesale Market

Apart from the 31 Full Banks that are able to engage in the full range of banking business, participation in the S$ wholesale market is currently open only to the 19 Restricted Banks. Offshore banks numbering 81 have limits on their S$ business. DPM Lee said that opening up the wholesale market to more international banks will provide companies in Singapore with better access to world-class financial products and services. Opportunity to tap the domestic wholesale market will also give international banks a stronger business case to develop their operations in Singapore.

MAS announced the following measures:

Replace the Restricted Bank with the "Wholesale Banking" licence.

"Wholesale Banking" will better reflect the wide range of activities that can be conducted under the licence.

The move marks a more fundamental shift by MAS away from its three tiers of banking licenses. Full, Restricted and Offshore - towards a more streamlined two-tier licencing regime of Full banks, which also serve the retail market, and Wholesale banks.

Wholesale Banks will have all the privileges currently enjoyed by Restricted Banks ¹.

Upgrade all Qualifying Offshore Banks and Offshore Banks to Wholesale Banking status over time.

MAS will grant about 20 Wholesale Banking licences over the next two years. The pace of upgrading will be reviewed thereafter. This will more than double the number of Restricted/Wholesale Banks in Singapore. The 8 Qualifying Offshore Banks will be given priority in the upgrading.

Existing Offshore Banks and banks that do not yet hold a banking licence in Singapore are encouraged to apply. They will be admitted in priority of their financial strength and ability to contribute to Singapore's financial industry.

Applications for upgradings this year will open from 30 June 2001. Applications should reach MAS by 31 August 2001.

Enhancing Competition in Retail Banking

In the first package of measures in 1999, MAS permitted 4 Qualifying Full Banks (QFBs) to establish up to 10 locations, of which 5 can be branches. QFBs were also permitted to re-locate their existing branches and share ATMs among themselves. MAS will maintain the momentum set by expanding the privileges of the QFBs in several areas. DPM Lee said that "for consumers, these changes will mean more choice and greater accessibility".

MAS will implement the following measures:

Accept applications for the remaining 2 QFB licenses.

In 1999, MAS committed to issuing 6 QFB licences. 4 were granted in October 1999. We will take applications for the remaining 2 this year.

Applications for QFB privileges open on 30 June 2001. Applications should reach MAS by 31 August 2001.

Permit each QFB to establish up to 15 locations, of which up to 10 can be branches.

The 15 locations can include both branches and off-site ATMs. The sub-limit of 10 branches will include branches and limited-purpose branches. This new limit will take effect immediately.

With 6 QFBs permitted to share ATMs among themselves, the increase in locations could result in a QFB ATM network of 90 or more locations across Singapore.

Permit QFBs to provide debit services through an EFTPOS network from 1 July 2002.

QFBs will be allowed to provide debit services through an EFTPOS network. They can negotiate with NETS, Visa or Mastercard for access on fair commercial terms.

This will allow QFBs to issue debit cards. Customers of the QFBs will be able to pay for their purchases and withdraw cash (cashback) at participating retail outlets using debit cards.

On the Visa network alone, this opens up more than 23,000 terminals to the QFBs. With cashback, each EFTPOS terminal becomes a potential cash withdrawal point.

Together with the potential QFB ATM network, this will significantly enhance competition in the retail banking market.

Permit QFBs to provide Supplementary Retirement Scheme (SRS) accounts and CPFIS accounts, and accept CPF fixed deposits from 1 July 2002.

Supplementary Retirement Scheme (SRS) accounts

The SRS was introduced in April 2001 to encourage Singaporeans to save more for their old age, through voluntary contributions to their SRS accounts. Contributions to SRS are eligible for tax relief.

QFBs that wish to offer SRS accounts can apply to the Ministry of Finance from 1 April 2002. Successful applicants will be permitted to provide SRS accounts from 1 July 2002.

CPF Investment Accounts

A CPF member may invest his Ordinary Account balance under the CPF Investment Scheme - Ordinary Account (CPFIS-OA). To do so, a member must open a CPF Investment Account with a CPFIS agent bank.

From 1 July 2002, QFBs will be permitted to offer CPF Investment Accounts. QFBs that are interested can write to the CPF Board.

CPF fixed deposits

CPF members may invest their CPF savings in fixed deposits with approved banks under the CPF Investment Scheme 'Ordinary Account (CPFIS-OA) and CPF Investment Scheme' Special Account (CPFIS-SA).

From 1 July 2002, QFBs will be permitted to accept fixed deposits under the CPF Investment Scheme and Minimum Sum Scheme. This will open up a large pool of funds that could be placed with the QFBs. About $62 billion of funds in CPF Ordinary and Special Accounts are still available for investment under the CPF Investment Scheme. QFBs that are interested can write to the CPF Board.

Consolidation Among Local Banks

DPM Lee welcomed the ongoing process of consolidation among the local banks as "a very positive development for the banking industry, and more importantly for Singapore". Consolidation, if well executed, will create stronger banks that are able to hold their own domestically, provide Singaporeans with better services, and compete and grow in the region

MAS will remain strictly neutral, and will not seek to influence the outcome. However, MAS will ensure that consolidation will not weaken the banks, threaten systemic stability, diminish competition or result in small depositors being neglected. The following measures will be taken:

• Continue to encourage the appointment of qualified professionals by the banks to manage their increasingly complex organisations and business;
  
• Intensify supervision of the merged local banks and require enhanced group-wide risk management systems adequate to their new scale and risk profile;
  
• Encourage cross-border partnerships which do not result in the foreign partner taking control of a Singapore bank.
  
• Guard against any potential abuse of market power by the merged banks; and
  
• Encourage and when necessary, require all banks with significant retail operations to provide basic banking accounts to low-income Singaporeans. DPM Lee said that "Government will ensure that in this competitive environment, low-income Singaporeans continue to have access to basic banking services at affordable prices."

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¹ Restricted Banks can: - accept deposits, make loans and conduct other banking business in foreign currency; - accept S$ fixed deposits of $250,000 or more; - operate S$ current accounts; and - lend in S$ without a maximum cap on the aggregate amount of loans.