Singapore's banks at the crossroads

The MAS and analysts agree that Singapore''s banking consolidation is just not happening quickly enough

So-called liberalization of the Singaporean banking sector has not delivered the necessary changes. As banking consolidation around the region and the world continues apace, Singapore still clings to its pre-crisis models.

An April 3 speech by chairman of the Monetary Authority of Singapore, Lee Hsien Loong, left many analysts cold at the way few concrete reforms have been instigated. The analysts say that compared with the changes to Singapore's telecom sector, and developments to the capital markets infrastructure, the banking sector has been left behind.

Specifically, they were concerned there were no new measures that would force the local Singaporean banks to focus more on their returns on equity and less on maintaining market share. The measures that many were looking for included a sweeping top-down directive telling banks to break associate cross-holdings with their non-banking corporate assets such as property development companies.

This regulatory statement that financial and non-financial assets would be separated would force banks to focus on the bottomline and not on asset plays, in the process delivering more value for shareholders.

Yet the MAS can only go so far. The authority is in the middle of the second year of a five-year deregulation aimed at creating a competitive environment where Singapore's banks can deliver the best services to their customers and the best returns to their shareholders. Measures such as the one noted above are certainly needed, but what is more important is for the banks themselves to accept that change is inevitable and to voluntarily adapt their businesses for the 21st century.

Banking reforms

Nobody likes state-directed banking reform. Witness the furore over Malaysia's efforts to force the local banks to consolidate. Never mind that it was unquestionably the right thing to do, the way it was done raised more ire than if it had not been done at all.

In Singapore's case, the local banks need to embrace the environment the MAS is so carefully crafting for them to prosper and survive. If they fail to do so, then they could expect a frustrated chairman Lee and his powerful lieutenants to force them to do so.

Lee has repeatedly said that the market can only support two large Singaporean banks. With DBS accepting the challenge and transforming its structure, outsiders can only look at the three remaining Singaporean banks - UOB, OUB and OCBC - and wonder what they are planning.

From recent meetings with the MAS, it seems that the authority is getting as tired of waiting for change as are analysts and shareholders. Unless Singapore's banks want change forced upon them, they had better grasp the baton now.

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