1   Good morning, ladies and gentlemen. It gives me great pleasure to be here today at the launch of the DBS PALs index.

2   DBS has always been an active player in the local capital markets. It is good to know that DBS is taking the lead in developing an index for local currency Asian bonds. As Asian local currency bond markets take off, such an index would be an important complement to its development.

3   It is useful here to provide some perspective on the importance of the bond markets. The Asian crisis highlighted problems associated with the under-development of bond markets in Asia.  A key lesson learnt was thus the need to strengthen regional financial systems and bond markets in particular, needed to be developed.

Development of Regional Bond Markets

4   Six years after the Asian crisis, efforts by regional governments to strengthen our financial systems and to develop the regional bond markets have borne fruit. We have seen encouraging growth of domestic bond markets. The regional economies now have healthy external balances and growing foreign reserves.  Companies in the region have also made good progress in their capital structures and corporate governance practices.  They are increasingly diversifying their funding sources from traditional bank loans and the equity markets, and looking into alternative sources such as the bond markets.

Singapore Bond Market

5   In Singapore, MAS has actively pursued the development of the bond markets.  The results have been encouraging.  The Singapore Government Securities market has grown significantly¹. The corporate market has also presented itself as an attractive alternative funding source for issuers. A diverse range of local and foreign borrowers, including supranationals, corporates, and financial institutions have all tapped the market repeatedly².  S$ debt issuance has almost tripled since 1997, while non-S$ debt issuance has risen more than 20 times.

6   Nonetheless, there is still some way to go towards achieving our goal of having bond markets that are deep, liquid and of sufficient critical size.  The ability to attract international investors is also crucial. Asia as a whole needs to bring its collective resources together in this effort.

Regional Initiatives

7   In this respect, Asian governments, through various regional fora, have been working on initiatives aimed at creating deeper and more efficient regional bond markets. Through EMEAP³, which is a forum involving the Central Banks of eleven countries in East Asia and the Pacific, Singapore is actively working with fellow central bankers to address common demand side issues facing our bond markets. You may have heard about the Asian Bond Fund, or ABF in short.

The ABF initiatives were geared towards re-channeling some of Asia's reserves back into Asia. Its objective is two-fold. It will further spur the development of the Asian bond markets. Secondly, it seeks to generate awareness amongst international investors and encourage them to consider Asian bonds, as a viable and distinct asset class for their investment.

ABF I was a US$1bn fund established by EMEAP to invest in US dollar-denominated Asian bonds The ABF II, which we are now working on, focuses on local currency bonds. It involves the establishment of a Pan-Asian Index fund, as well as individual country bond funds. In launching this, we would have provided the catalyst for the creation of a Pan Asian local currency index comprising the EMEAP countries.

Conclusion

8   We have good reasons to be positive about the long-term prospects for Asia and its capital markets. Asian governments are working together in an unprecedented manner to develop the Asian bond markets. In all these efforts, involvement of industry players like DBS is essential. The launch of the DBS PALs is therefore timely as it supports these efforts. We hope that it could further spur the development of the local currency bond markets.

9   With this, I wish DBS a very successful launch of the index.

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¹ The SGS market now stands at S$64bn (May 2004), almost tripled that of 1997. The average daily turnover has also increased by 7 times since 1997 to over S$2bn.
² The list is long and growing: the IFC, EBRD, ADB, Freddie Mac, Sallie Mae, McDonalds, DBS Bank, Singtel, Singapore Power etc have all tapped the market.
³ Executives' Meeting of East Asia Pacific Central Banks.