Development of Singapore's Capital Markets

1   Good morning, ladies and gentlemen, it gives me great pleasure to welcome you to HVB's Securitisation Forum.

2  The MAS introduced major initiatives in 1998 to boost the development of our bond market. Since then, it has grown in size, breadth and depth. Riding on this, the structured products market has also taken off. I would like to share with you our initiatives to develop our bond markets and highlight recent developments in the structured products markets.  

Infrastructure - Singapore Government Securities

3   To encourage companies to use the bond markets for their funding needs, we first had to implement the appropriate infrastructure. One of the first steps we took was to develop a domestic government yield curve. We set up a focused Singapore Government Securities (SGS) issuance program so as to create a benchmark for corporate bonds. We introduced regular auctions of SGS and have extended the yield curve up to 15 years. Measures were also taken to enhance liquidity of the SGS market.  We also increased the number of primary dealers to allow for more market makers.  As an important tool to support secondary market activity and liquidity, a repo facility was also established.

4   These measures facilitated the creation of a deep and liquid SGS market. As at June 2004, the outstanding size of the SGS market stands at S$64bn, almost triple that of 1997. The average daily turnover has also increased by 7 times since 1997 to over S$2bn. The SGS market now provides a benchmark yield curve which corporate borrowers can effectively price their bond issues.

5   To jumpstart our corporate bond market, we encouraged our statutory boards and other local companies to tap the corporate bond market. To further increase the diversity of issuers, we also encouraged foreign entity issuers to tap the Singapore dollar (S$) bond markets. Here we substantially liberalised policies which had limited access to S$ by non-residents. By May 2004 only very minimal restrictions remain.  Non-resident, non-financial issuers of S$ bonds and equities will no longer be required to swap or convert their S$ proceeds into foreign currencies before remitting their proceeds abroad.

6   We have seen encouraging developments in the corporate bond market. Over the past few years, we have seen a diversity of foreign entity issuers come to tap the S$ bond market, including those from the USA, Europe and the Asia Pacific. In the first half of this year, we were pleased to see names such as Fannie Mae, Sallie Mae and the Asian Development Bank tap the Singapore Dollar Bond Market. The volume of corporate bond issuance in 2003 has also rebounded from 2002, recovering close the record levels of 2001. Compared to 1997, prior to developmental initiatives being put in place, S$ issuance almost tripled to S$19.3bn, from a base of S$6.7bn.

Diversity of Products

7   To ensure that the market has sufficient breadth, we also sought to facilitate the growth of different products. One area of focus includes developing the structured products market, which asset securitisation is a part of.

8   To facilitate the use of asset securitisation as an alternative form of financing, we introduced guidelines on the capital treatment for asset securitisation, and for credit derivatives. This give participating financial institutions certainty on the risks and responsibilities associated with such transactions. Another development was the introduction of investment guidelines for insurance companies. This allowed insurance companies to invest in credit derivatives for hedging or portfolio management purposes, thus giving them more flexibility to invest in a wider range of products. 

9   By creating a conducive environment, these regulatory measures have helped to pave the way for a structured products market to develop in Singapore's debt capital markets. Structured products now make up 57% of the S$ denominated debt market in Singapore, compared to 19% in 2000. An entire range of structured debt securities including equity linked notes (ELNs), credit linked notes (CLNs), asset backed securitisation (ABS), CDOs etc are now common in the Singapore market. The asset securitisation market in Singapore itself has grown about 5 times in size since 1999. Asset securitisation deals that have come to our market include those backed by credit card receivables, loans, real estate receivables and progressive payments from yet to be completed properties.

10   We continue to encourage the development of the debt market in Singapore by ensuring a friendly tax environment here. Since 1998, investors in qualifying debt securities enjoy concessionary tax treatment on interest income. Soon, we will be announcing the details of a concessionary tax treatment on onshore Special Purpose Vehicles (SPVs) engaged in asset securitisation transactions.  This is aimed to allow for onshore SPVs to achieve tax neutrality that is so critical for securitisation.

Conclusion

11   Singapore's debt capital market is an important part of our financial system. The initiatives highlighted above are by no means the only ones that the market will see. Continuous innovation in the markets will require us to constantly review our policies to ensure that our operating environment remains conducive. Forums like this one today will go a long way to promote more industry interaction and for the MAS to better understand industry trends and needs. On that note, I wish you all a fruitful discussion over these next days and a half.