Published Date: 22 July 2005

Opening Remarks By Mr Heng Swee Keat, Managing Director, at MAS' Annual Report 2004/2005 Press Conference, 22 July 2005


1   Good morning. Let me share with you a quick overview of current economic conditions before I move on to talk about highlights of the financial sector's growth and other aspects of MAS' work.

Economic Conditions And Outlook

2   Supported by buoyant global economic conditions, the Singapore economy grew by a robust 8.4 percent in 2004, with broad-based growth across all major sectors.

3   The global economy is expected to grow at a more moderate pace this year, but it will remain supportive for the Singapore economy. Although our GDP growth slowed in the first quarter of 2005, this largely reflected fluctuations in the biomedical sector.

4   Overall, the economic outlook remains positive. The latest advance estimates show that growth picked up in the second quarter of 2005.  Real GDP expanded by 3.9%, with the growth momentum rebounding strongly, coming from both the manufacturing and services sectors. The underlying growth support for our economy remains intact, and barring unforeseen shocks, activity in the second half of the year will be sustained. The Singapore economy is forecast to grow by between 2.5% and 4.5% in 2005.

5   Although headline inflation is low, we remain vigilant of inflation pressures over the medium-term. The economy is close to its potential output level and there are the upside risks to the external inflation environment, including from the persistently high oil prices.  Since April 2004, MAS has maintained a policy stance of modest and gradual appreciation for the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band.   The policy stance remains appropriate. The next monetary policy statement will be released in October as scheduled.

6   Let me now turn to growth of the financial services sector in the past year.

Strong Performance In The Financial Services Sector

7   Financial services continue to grow in scale and sophistication.  The overall growth rate came in at 6% in 2004, and the expansion was fairly broad-based across most key segments of financial services. In particular, the asset management market and corporate debt market showed good performance. The sector also provided an important source of employment growth.  Over 6,000 jobs were created in the financial sector last year. The sector enjoyed the highest average pay in the economy, exceeding S$5,500.

8   I shall now touch on a few areas where growth has been commendable, starting with the asset management industry.

Assets Under Management Surged 23%

9   Asset management grew strongly.  MAS' asset management survey in 2004 indicated that total assets under management (AUM) expanded by 23% year-on-year to over S$570 billion. 

10   Singapore continues to play the role of an international fund management centre, with 70% of total assets under management (AUM) being sourced from overseas. The Asia-Pacific countries remain the main source of funds but in the past few years, new high-growth markets such as the Middle East and South Asia have emerged.

Number Of Investment Professionals Rose By More Than 15%

11   Asset management companies in Singapore have returned to hiring, adding 149 investment professionals in 2004.  This is different from the drop we saw in 2002 and 2003.

12   Going forward, prospects for asset management are bright. Good economic growth in Asia has attracted global investors to allocate more investments to Asia, to ride on this growth and to provide diversification.  Within Asia, wealth creation, increasing affluence and investor sophistication will generate strong demand for the full range of asset management services.

13   I will now go through some highlights of the corporate debt market.

Corporate Bond Market Grew 20%

14   The Singapore bond market continues to develop in size and sophistication. In the corporate debt market, our recent survey showed total outstanding corporate debt securities rising 20% to S$123 billion at end 2004, as a wide range of borrowers tapped the Singapore market.  The volume of new corporate debt issuance also grew 17% to S$78.7 billion (of which S$21.7 billion were denominated in SGD). 

Structured Credits Accounted For 60% Of SGD Debt Issues

15   Of the total SGD denominated debt issues, structured credit accounted for about 60% of the total.  These structured credit included equity linked notes, convertible bonds, credit linked notes and asset securitisation transactions.

Record Number of Foreign Entities Tapped The SGD Bond Market

16   In 2004, the SGD bond market saw the largest number of foreign issuers at 34, raising a total of S$3.5 billion.  This included not only corporates and financial institutions such as General Electric and Citigroup, but also supranationals such as the Asian Development Bank (ADB) and U.S. Agencies like Fannie Mae.

Other Areas Of Growth

17   In the treasury market, Singapore maintained its ranking as the fourth largest forex centre in the world, according to the 2004 BIS Triennial Central Bank Survey of Foreign Exchange (FX) and Derivatives Activity.  OTC derivatives turnover also tripled to US$17 billion in 2004. Singapore is now the 12th largest OTC derivatives centre globally, strengthening its position as the second largest centre in Asia.

18   We are also seeing a healthy growth of capital market activities, particularly as companies in Asia continue to expand domestically and abroad.  The joint market capitalisation of the Mainboard and SESDAQ rose 16% to S$452 billion in 2004, propelled by the rise in equity prices and the growing number of listed companies.  As at end 2004, we have 625 companies listed on the Singapore Exchange, up from 551 companies in 2003.  We continue to see a steady pipeline of foreign companies seeking listing in Singapore.  The market for real estate investment trusts (REITS) has grown steadily in Singapore.  We are now the largest REIT market in Asia (ex-Japan).  We are optimistic that with our conducive regulatory and business environment, and the expertise of players and supporting services here,  we will continue to see strong  development of the REITs market in Singapore.

19   Let me now to touch on MAS' interactions with our counterparts in the international arena.

MAS In The International Arena

20   MAS values the cooperation and dialogue with international organizations, fellow central banks and regulators. We collaborate with the Bank for International Settlements (BIS), the International Monetary Fund (IMF), the World Bank (WB), as well as in regional fora such as the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), the South East Asian Central Banks (SEACEN) and the South East Asia, New Zealand, Australia Central Banks (SEANZA).

21   Within ASEAN, we are working closely to develop our capital markets and to create an interlinked ASEAN securities market in the long term.  The five ASEAN exchanges will launch an index of ASEAN stocks later this year.  Other initiatives such as the US$ 2 billion Asian Bond Fund 2, as well as efforts by regulators to harmonize regulatory standards and rules regarding cross-border distribution of securities are important steps in that direction. ASEAN economies grew an average of 6.3% in 2004, and the prospects in the coming years remain good.  This growth will create significant demands for financial services, and enlarge the scope for cooperation among ASEAN members to meet these demands.

22   Within Asia, Singapore's free trade agreements (FTAs) with Japan, India and Korea will enhance the good relations that we have with our counterpart agencies.  In May 2005, MAS signed a Memorandum of Understanding (MOU) with the Chinese Insurance Regulatory Commission.  MAS was admitted as a member of the Islamic Financial Services Board in 2005.   Discussions at the recent inaugural Asia-Middle East Dialogue (AMED) highlighted many complementary strengths and potential synergies between Asia and the Middle East.  We will therefore continue to seek areas of cooperation with regulators in the Middle East. 

23   Through all these, we hope to pave the way for stronger growth in financial services activities between Singapore and our partners, to promote better market access and to enhance cross border flows of capital. 

24   Let me now touch on our regulatory and supervisory work.

Enhancing Our Supervisory And Regulatory Regime

25   Our approach is to reinforce the responsibility of the board and management of financial institutions to maintain good risk oversight of its business activities, deal fairly with customers and ensure compliance with regulatory standards. 

26   As we operate in an increasingly complex environment, it is important that financial institutions understand what MAS aims to achieve through our supervision and regulation.  In this regard, we published a monograph last year, stating MAS' objectives of supervision, the functions that MAS performs, and the principles that guide our supervisory approach.  In this year's annual report, we have gone a step further to provide information on our inspections and supervisory reviews, including information on some of the thematic inspections that were carried out.  

27   To better understand risks in a more inter-connected system, we have dedicated more resources to macro-prudential surveillance.  In particular, we have been undertaking analysis of macroeconomic and financial developments and their implications for the stability of the financial system.  In December 2004, we began to publish our assessments in the Financial Stability Review (FSR) a semi-annual publication. The FSR communicates our views and findings on the risks and vulnerabilities of Singapores financial system.

28   By promoting a better understanding of our operations and communicating our assessments, market players can gain a better understanding of MAS' expectations as well as major issues affecting Singapore's financial system. Together, MAS and the industry, can work towards achieving a sound and progressive financial services sector.

29   We have also taken steps to enhance our regulations to keep pace with this rapidly changing world where new complex products and business models are constantly being introduced. 

30   In the past year, we fine-tuned the Financial Advisers Act to regulate the sales and advisory process for new hybrid investment products such as structured deposits and traded life polices.   To ensure high standards of probity, professionalism and business conduct in the trust services industry, we introduced the Trust Companies Act.   We also introduced a regulatory framework for Business Trusts, creating a new asset class for investors and adding more depth and sophistication to our markets.

Empowering Consumers

31   As more financial products are introduced, consumers need to understand these products well to make informed decisions. MoneySENSE embarked on the first national financial literacy survey earlier this year.  The survey aims to benchmark the current level of financial literacy among Singaporeans, and enable MoneySENSE to better develop and deliver financial education programmes to the targeted segments.

32   MAS also facilitated the set-up of the Financial Industry Disputes Resolution Centre (FIDReC) to enhance the efficiency of dispute resolution mechanisms for retail consumers.  FIDReC brings together existing dispute resolution schemes under the banking and insurance sectors, with extended coverage to include the capital markets sector.

33   Before I conclude, let me move on to the Annual Accounts.

Annual Accounts

34   Compared to the previous financial year, MAS posted a lower net profit of S$3,850 million for the year due to less buoyant financial markets.

35   MAS' total assets grew by 8.2% to S$194,485 million at 31 March 2005.  The Currency Fund's net external assets of S$17,484 million at the financial year-end exceeded the currency in circulation, providing 113% asset backing.


36   MAS continues to be focused on supporting non-inflationary economic growth, developing the financial sector and enhancing the supervisory framework for a sound and resilient financial sector.  

37   We will also continue to engage the industry in exchanges of views and insights, and pursue mutually beneficial goal to grow Singapore's position as a vibrant and sound financial centre serving the needs of increasingly sophisticated domestic as well as international investors.