Singapore treasuries shift focus from forex to money markets

Singapore''s foreign exchange market declines as treasurers look to exotic products in capital and money markets, an MAS survey reveals.
There has been a shift in treasury activities in Singapore. Foreign exchange markets have been losing their prominence as a source of revenue, as financial institutions shift their focus to money markets and capital markets, according to the results of a survey conducted by the Monetary Authority of Singapore (MAS) on the1999 treasury activities of all banks, merchant banks and securities houses in Singapore.

According to MAS, the reason for the growth in the significance of capital market activities is due to "the increased maturity and sophistication of Asian companies following the crisis". Treasuries have increased the emphasis on risk management activities, resulting in demand for more structured and exotic products.

Where the market in previous years was dominated by foreign exchange activities, the money market provided the largest revenue for treasury operations in Singapore in 1999. More than half the total treasury revenue (54%) came from money market activity last year. The capital markets contributed 27% of total revenue, a marked increased from a contribution of 7% of revenue last year. Foreign exchange activities in 1998 accounted for 52% of treasury revenue, but in 1999, the foreign exchange market generated only 16% of revenue.

The slowdown of global and local markets over the past year has been due to the consolidation of industry players in foreign exchange. Furthermore, the introduction of the Euro has lead to the loss of intra-European currency trading opportunities, further resulting in the decline in the volume of foreign exchange activities globally. The average daily turnover of the Singapore foreign exchange market in 1999 was 19% lower than in 1998. Advances in technology have been the main push factor behind the move away from the foreign exchange markets. New delivery channels such as the internet has meant a wider dispersion of a more exotic range of financial services to treasury professionals.

Although there has been a marked decrease in foreign exchange activity, the number of foreign exchange dealers in Singapore has remained steady. However the big change in 1999 has been the number of professional in capital markets, rising 20%. Similarly, the number of professionals in money markets exhibited growth, increasing by 7%.

Total treasury revenue increased by 12.5% in 1999 to S$5.4 billion ($3.08 billion). Profits before tax have similarly increased by 30%, from S$3.3 billion in 1998 to $S4.3 billion in 1999. The increase in profits has been derived from higher profit margins in robust capital and money markets.

Costs of running a treasury has also decreased, leading to higher profits. Total costs decreased by 27%, from S$1.5 billion to S$1.1 billion in 1999. Miscellaneous costs, such as the cost of premises, and cost of technology, fell most significantly by 39%.

As for the future, 15% of financial institutions surveyed said that they were already offering a wider range of structured products, such as credit derivatives, asset-backed securities, equity derivatives and other asset-liability management instruments. The growth in structured products in Asia can be attributed to the increased awareness of risk management techniques, the increase in level of mergers and acquisitions activity, as well as the active restructuring of corporate debt in Asia, the survey concluded.

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