Singapore as a Global Financial Centre 26 05

Singapore as a Global Financial Centre 26. 05. 2001 Singapore as a Global Financial Centre Singapore, 26 th May 2001 Prof. Dr. Thomas A. Lange Chief Country Officer, Deutsche Bank Group, Singapore General Manager, Deutsche Bank AG, Singapore Branch Deutsche Bank 1

Singapore as a Global Financial Centre 26. 05. 2001 I. Singapore’s Financial Landscape Deutsche Bank 2

Singapore as a Global Financial Centre 26. 05. 2001 1. Financial Services Industry at a Glance n Credit Ratings: Standard & Poor’s: AAA; Moody’s: Aa 1 n App. 11% GDP share of the financial services industry n More than 700 financial institutions – thereof: v 5 local banks (DBS, OCBC, UOB, OUB, KTL) v 136 commercial banks v 60 merchant banks v 13 finance corporations “… among the most sophisticated financial markets in the world …” (World Economic Forum, Global Competitiveness Report, 1999) Deutsche Bank 3

Singapore as a Global Financial Centre 26. 05. 2001 One Example: Global Foreign Exchange Daily FX-Volume in USD bn 1989 Global Market Share in % 32 590 1992 18 820 1995 8 1. 190 1998 1. 500 7 Source: IMF Deutsche Bank 4

Singapore as a Global Financial Centre 26. 05. 2001 II. The Regulatory Environment Deutsche Bank 5

Singapore as a Global Financial Centre 26. 05. 2001 1. The Monetary Authority of Singapore … n The Financial Services Industry is regulated and controlled by the Mo. F through the MAS. n Established under the Monetary Authority of Singapore Act, 1970, MAS began its operations on 1 January 1971. http: //www. mas. gov. sg Deutsche Bank 6

Singapore as a Global Financial Centre 26. 05. 2001 2. … and its Responsibilities n MAS regulates the financial and monetary environment of the country and plays an important role to develop Singapore as a “world-class financial centre”. n MAS performs all functions of a central bank except the currency issuing function. n MAS formulates and implements Singapore’s monetary and exchange rate policies. The Board of Commissioners of the Currency issues and redeems Singapore currency notes and coins in exchange for other currencies or gold. n MAS acts as a bank and as a lender of last resort. “ … to be a central bank of excellence …” Deutsche Bank 7

Singapore as a Global Financial Centre 26. 05. 2001 III. The Licensing Framework Deutsche Bank 8

Singapore as a Global Financial Centre 26. 05. 2001 1. Banks and Merchant Banks Merchant Bank Full License Restricted License Offshore License No license but MAS approval Deutsche Bank 9

Singapore as a Global Financial Centre 26. 05. 2001 2. Full License n Enables to provide full range of banking services to domestic and foreign customers n With approval of MAS branching permitted n Qualifying Full Bank privileges under the banking liberalisation programme announced in May 1999. – additional branches and/or – off-premise automated teller machines (ATMs), as well as – to share ATMs amongst themselves n No German bank is operating under a full license. Deutsche Bank 10

Singapore as a Global Financial Centre 26. 05. 2001 3. Restricted License n Created to accommodate further entry of commercial banks into Singapore n Same range of banking business as full licence banks except that they may not: – accept Singapore dollar fixed deposits of less than S$250, 000 per deposit from nonbank customers – pay interest on Singapore dollar current accounts operated by resident individuals Consequence: no retail banking Deutsche Bank 11

Singapore as a Global Financial Centre 26. 05. 2001 4. Offshore License n Same opportunities as full and restricted banks, more restrictions. Additionally to conditions imposed on restricted banks, offshore banks also may not: – accept interest bearing deposits from resident non-bank customers other than approved financial institutions – extend total credit facilities in Singapore dollars exceeding S$500 million to non-bank customers who are residents of Singapore n Eight offshore banks were awarded Qualifying Offshore Bank privileges under the banking liberalisation. – S$ lending limit increased to S$1 bn – allowed to engage in S$ swaps, without any restriction on the purpose of the swaps Deutsche Bank 12

Singapore as a Global Financial Centre 26. 05. 2001 IV. Asian Currency Units (ACUs) n Separate units (no separate legal entities) established with the permission of the MAS Although ACU’s are governed by the Banking Act, they are exempted from the statutory liquidity requirements (s. 5. 10) and local minimum capital requirements (s. 5. 1). However, the activities of ACUs are subject to limit set by the MAS. to conduct foreign currency denominated banking and merchant banking business n Prohibition from engaging in any SGD denominated business n Concessionary 10% tax rate on offshore income Therefore most of the banks as well as merchant banks have two books. Deutsche Bank 13

Singapore as a Global Financial Centre 26. 05. 2001 V. Financial Deregulation Initiatives since 1997/98 … with the aim – to develop the bond market – to push the equities and future market – to boost the asset management industry – to gradually internationalise the Singapore Dollar – to segregate financial and non-financial assets – to improve professional know how Deutsche Bank 14

Singapore as a Global Financial Centre 26. 05. 2001 1. A Famous Quote. . . “Our Aim is to develop the financial sector further and make Singapore one of the key financial centres in our time zone, and in the world. ” DPM Lee Hsien Loong Chairman, Monetary Authority of Singapore November 1997 Deutsche Bank 15

Singapore as a Global Financial Centre 26. 05. 2001 2. Model of Singapore’s Bond Market Currency Non S$ S$ Property Companies Issuer Government (SGS) Statutory Boards Corporates Financial Institutions Deutsche Bank 16

Singapore as a Global Financial Centre 26. 05. 2001 3. Steps Towards A Successful SGS Market n In August 1998, MAS began issuing 10 year Singapore Government Securities (SGS) kick-starting the construction of a viable benchmark yield curve. n In September 1998, MAS established a public calendar for future regular issues. n In November 2000, MAS exercised the first regular buying back of 1 bn SGS to help to channel liquidity. n In September 2001, MAS will begin to issue 15 years SGS’s to further enhance the yield curve. Deutsche Bank 17

Singapore as a Global Financial Centre 26. 05. 2001 4. Steps Towards A Successful Corporate Bond Market The initiatives were announced in August 1998. n Statutory Boards and government linked companies are encouraged to issue bonds and not only to rely on government funding n Foreign players are allowed to issue in Singapore Dollars under certain conditions n Tax incentives were introduced to approved bond intermediaries (ABIs) to develop the origination, placement and management of debt issues Deutsche Bank 18

Singapore as a Global Financial Centre 26. 05. 2001 5. Tax Incentives To Encourage A Vibrant Bond Market n Tax exemption on fee income earned from arranging, underwriting and distributing qualifying debt securities n Concessionary tax rate of 10% on interest income from holding “Qualifying Debt Securities” arranged in Singapore n Concessionary tax rate of 10% on interest income earned from trading in debt securities n Withholding tax exemption on interest from “Qualifying Debt Securities” arranges in Singapore payable to non-resident n “Qualifying Debt Securities” are defined as securities lead-managed by “Approved Bond Intermediaries” (ABI) in Singapore Deutsche Bank 19

Singapore as a Global Financial Centre 26. 05. 2001 6. Total S$ and Non-S$ Denominated Debt Issuance 50. 5 36. 1 19. 5 8. 5 1. 8 8. 7 4. 5 6. 7 4. 2 1997 In S$ bn 1998 S$ Denominated Debt 10. 3 9. 2 1999 14. 4 2000 Non-S$ Denominated Debt Deutsche Bank 20

Singapore as a Global Financial Centre 26. 05. 2001 7. Breakdown of S$ Corporate Debt Issuance by Issuer Type Property Companies 28% Statutory Boards Asia Pacific 5% 10% Financial Institutions 3% UK/Europe 8% USA 5% 41% Other Corporates Deutsche Bank 21

Singapore as a Global Financial Centre 26. 05. 2001 8. A True Success-Story Deutsche Bank 22

Singapore as a Global Financial Centre 26. 05. 2001 VI. Separation Of Financial and Non-Financial Activities n Last year the Government decided: – to require the local banking groups to segregate their financial and non-financial activities – and to unwind the cross-shareholdings of the two n There will be four key elements in the segregation involved. Ownership Management Crossshareholding Name-sharing Deutsche Bank 23

Singapore as a Global Financial Centre 26. 05. 2001 Key Elements n Ownership – MAS will require all the financial activities in each banking group to be grouped together, either under the bank or a non-operating financial holding company (FHC). – The non-financial activities must be segregated from the banking group and divested. – They can be sold to third parties, or alternatively to the principal shareholders of the bank. – MAS will regulate the bank or FHC, but it will not regulate the non-financial activities. n Cross-shareholding – The financial entities will not be allowed to own, directly or indirectly, the shares of non-financial firms affiliated to the same principal shareholder. – Within the financial arm, shareholdings should only be in one direction. – MAS will not allow two companies in the financial arm to have mutual shareholdings in each other. Deutsche Bank 24

Singapore as a Global Financial Centre 26. 05. 2001 Key Elements (cont. ) n Management – The management of the financial entities should be separate from the management of its non-financial affiliates. – no sharing of executive directors and management staff – On the board of directors of a regulated financial entity, a majority of the directors should not be holding directorships on the boards of the non-financial affiliates. n Name-sharing – MAS will disallow the sharing of names and logos between the financial and nonfinancial entities. Deutsche Bank 25

Singapore as a Global Financial Centre 26. 05. 2001 VII. Financial Sector Development Fund n Facilitating development and enhancement of talent and other infrastructure for Singapore’s financial centre n Support of manpower development schemes: – Executive Development Scheme (EDS) to encourage Singapore-based financial institutions to develop the skills and capabilities of their executive staff in key areas of expertise – Global Enrichment Initiative (GEI) to help financial executives tap on world-class-know-how in other leading financial centres – Training Infrastructure Enhancement Scheme (TIES) to encourage the development of a dynamic training environment that enhances Singapore’s competitiveness as an international financial centre Deutsche Bank 26

Singapore as a Global Financial Centre 26. 05. 2001 VIII. Singapore’s Future Perspective n The qualifying for the Asian Financial Centres to be in the pole position is still ongoing. n However, the MAS achieved a lot and therefore remains very fast on track. n Keeping control over the local currency while continuing to develop the local debt market will be a juggling act that will keep MAS busy for a long time. n It may determine the viability of Singapore’s future as a regional financial hub and to lead regional consolidation. Deutsche Bank 27