Opening Remarks by Mr Koh Yong Guan, Managing Director

Introduction

Good morning, ladies & gentlemen. Welcome to this press briefing for the release of the 2001/2002 Annual Report of the Monetary Authority of Singapore. The Annual Report is for the year ended 31 March 2002 and captures the activities of the MAS during a difficult 12-month period for Singapore. The economy went into recession, it's worst ever since the mid-eighties. September 11 further dampened the already bleak economic outlook.

For the sake of completeness, let me recapitulate what we said in MAS' Macroeconomic Review that was issued two weeks ago. The external economic environment has improved since the last quarter of 2001, reflecting robustness in consumer spending and a reduced pace of inventory liquidation in the US.

Although global financial markets continue to be volatile, the consensus is that growth in the US and other major economies is unlikely to be derailed. On balance, we expect Singapore's real GDP growth to come in at the upper half of the official forecast range of 2-4 % in 2002. To facilitate continued economic recovery, MAS is maintaining its current policy stance of zero percent appreciation in the S$NEER for the second half of 2002. This was enunciated in our Monetary Policy Statement on 11 July.

The current market conditions, coming close on the heels of uncertain economic conditions for Singapore last year has important implications for the MAS - in its roles as a monetary authority and supervisor of the financial services industry.  Volatile and uncertain conditions such as what we have seen test the mettle of countries and institutions such as Singapore and the MAS. I believe that Singapore and the MAS, in staying the course during turbulent economic and market conditions, have demonstrated once again that fundamentals do matter. From the perspective of the MAS, the fundamentals include sound macroeconomic management, a regulatory and supervisory regime that is responsive and in tune with new developments and trends. 

Let me turn now to the task at hand to provide you with an overview of the latest annual report and highlight some of the major activities undertaken by the MAS last year. The annual report is divided into several sections. In the interests of time, I will focus on the most important sections and we will then open the briefing for questions.

• Annual accounts: The Authority's total assets as at 31 March 2002 totalled S$129.7 billion compared with S$129.5 billion a year ago. Larger holdings of Singapore Government Securities and currency notes were offset by a decrease in foreign assets. On the liabilities side, an increase in deposits from the Singapore government of S$11.8 billion was partially offset by lower borrowings from banks in the Authority's money market operations. MAS' profit after provisions for the financial year ended 31 March 2002 was S$641 million, S$1.4 billion lower than the previous year. This can be attributed mainly to lower interest income and the generally unfavorable conditions in financial markets.
• Regulatory Initiatives in the Financial Sector: MAS embarked on a series of regulatory initiatives last year. Major initiatives on the regulatory front last year were the passage by Parliament of the Securities and Futures Act (SFA) and the Financial Advisors Act (FAA). The SFA and FAA will fully come into force by the third quarter of 2002.  MAS took several important steps last year in its efforts to introduce a risk-sensitive supervisory framework for the financial industry in Singapore. This includes banks, insurance companies and member companies of the Singapore Exchange (SGX). MAS has completed the first phase of its study of deposit insurance and concluded that it is suitable for Singapore. We will shortly be issuing a public consultation paper that sets out the objectives and the key parameters of the DI scheme. The consultation process, with industry and interested parties will commence next week. Moving forward, MAS is studying ways to enhance integrated supervision of the financial sector. We are, after all, one of the world's first integrated regulators and we will continue to harmonise our regulations, enhance supervisory processes and ensure that our resources are deployed in the most effective way.
• Developmental Initiatives in the Financial Sector: MAS pressed on to further liberalise the financial sector. In June 2001, MAS announced a major package to further liberalise the domestic banking sector. MAS freed up the wholesale banking market and committed to progressively upgrade all Offshore banks to Wholesale Bank status. We also enhanced the Qualifying Full Bank (QFB) privileges, and awarded QFB status to two more foreign banks, in addition to the four that received QFB status in 1999. In March 2002, MAS further liberalised the Singapore dollar non-internationalisation policy to ease access to Singapore dollar credit by non-residents wishing to invest in or tap our capital markets.
• Growth and Performance of the Financial Sector: There was continued consolidation in the number of financial institutions in Singapore last year. This was in line with global trends, where a major consolidation of the financial services industry is underway. There were significant consolidation moves in the local banking industry as well. The five local banking groups merged into three. Notwithstanding these developments, financial sector value-added grew at a 2.2 % pace last year, compared with 4.6 % in 2000. The pace of expansion in the value-added shows that Singapore's financial sector remains on a dynamic and competitive footing. One example of this is the continued growth in our asset management industry. MAS released its annual asset management survey two months ago that showed total assets under management continuing to rise by a significant 11 % in 2001 to S$307 billion, from S$276.2 billion at end-2000.
• Corporate Governance Initiatives: Corporate governance and financial disclosure standards for financial institutions were further enhanced last year. MAS will now require banks to change auditing firms every five years, a step aimed at enhancing the independence and effectiveness of external auditors. Banks have until 2006 to implement this requirement but have been advised to carry out the change as soon as is practicable. The local banks have also decided to implement more stringent corporate governance requirements with effect from their AGMs held from 1 January 2003. These measures include strengthening the independence of bank boards, as well as nominating, audit and compensation committees. In particular, the independence of directors will be assessed not just in terms of the business relationship element stated in the Code of Corporate Governance, but also by their independence of both executive functions and substantial shareholders. All in all, MAS will continue to pay close attention to corporate governance issues and will consult with industry on major initiatives.
• BCCS merger with MAS: On organisational matters, the Board of Commissioners of Currency, Singapore (BCCS) will be merging with MAS. We are targeting to complete the merger exercise by October 2002. The merger of the two institutions is being undertaken with the objective of streamlining the institutional structure and rationalising common functions in the two institutions. After the merger, MAS will become a full-fledged central bank with a range of functions, including currency issuance.

In conclusion, let me say that the MAS faced a very challenging 2001 because of a deteriorating economic environment at home and the major consolidation and restructuring of the financial sector, here in Singapore and globally. The current financial year is likely to be equally challenging, going by what we have witnessed during the first quarter. MAS will keep a close watch on global economic trends to assess their likely impact on our economy. And for our financial sector, we will ensure that it remains on a dynamic and competitive footing. Thank you very much and my colleagues and I are now available to take your questions.