Banking System of Singapore

Banking system of SingaporeSingapore is one of the leading financial centers of the world and a major distribution hub of finance in Southeast Asia. No wonder, therefore, that the country has created one of the most advanced banking systems in the world, numbering about 700 local and foreign banks and financial institutions that provide services ranging from consumer banking and asset management to the stock exchange, investment banking and specialised insurance services.

At the end of 2004, Singapore’s domestic banking sector consisted of assets / liabilities in the amount of about 230 billion U.S. dollars. Singapore’s leading banks are ABN AMRO, Citibank, DBS, HSBC, OCBC, Standard Chartered and UOB. Country’s central bank is the Monetary Authority of Singapore (MAS), which determines monetary policy, regulates banks and financial institutions and issues the currency. Despite the current lack of government-sponsored deposit insurance program, MAS plans to establish such a system in the near future.

Activities of commercial banks licensed in Singapore and are subject to the Banking Act. Commercial banks may engage in all possible types of banking activities. In addition to providing commercial banking services, including deposit-taking, lending and checking operations, banks may also engage in any other kind of banking business, which is regulated or permitted by MAS, including consulting services in finance, brokerage services in the field of insurance and capital market placement services (Section 30 of the Banking Act describes all the possible types of banking activities).

Commercial banks and their representatives do not necessarily need a separate license for such activities, but must comply with the code of conduct in its business activities prescribed in the Act on Financial Advisors (IA) and the Law on Securities and Futures Act (SFA), respectively. In July 2001, the Banking Act was amended by prohibiting banks from engaging in non-financial activities. Banks were provided three years, until July 2004, on completion of their non-financial activities. In August 2003, this grace period was extended for another two years until July 2006 for those banks which have applied to MAS to request an extension. Currently, in Singapore operate 113 commercial banks. Five of them are registered at the local level and are owned by three local banking groups. Commercial banks can operate as banks, providing the full range of services, wholesale banks or offshore banks.

Banks providing a full range of services

Currently, there are 28 banks, offering the full range of services and operating under the Banking Act in Singapore. Five of them are registered and owned by the local 3 local banking groups, and the remaining 23 banks are branches of banks registered abroad. Six of the 23 branches of foreign banks have the privilege to implement a full range of banking services. Foreign banks, providing the full range of services and those who use the specified privilege can only have 15 branches and / or ATMs of which a maximum 10 can be separated from the branches. These banks can use ATMs in conjunction with each other and are free to change the location of their offices. From July 1, 2002, privileged banks were allowed to provide services through EFTPOS (electronic funds transfer)debit network, to offer additional pension package, to use the investment accounts (CPF Investment Scheme accounts) and take time deposits in the investment scheme with a minimum amount of the deposit.

Wholesale banking

Wholesale banks may engage in the same banking activities that banks offering a full range of services, except that they do not have the right to provide retail banking services in Singapore dollars. They operate in accordance with the Guidelines issued by MAS to work wholesale banks. In Singapore, there are 37 wholesale banks, and all of them are subsidiaries of foreign banks.

Offshore banks

Offshore banks have the right to engage in the same activities as banks, providing a full range of services, as well activities involving Asian currencies, expressed in units of Asian currencies (ACU). Units of Asian currencies – is an accounting unit used by banks to account for all their foreign currency transactions carried out on the Asian market. Banking operations in Singaporean dollars are accounted separately in the domestic banking unit (DBU). The volume of transactions carried out in the domestic banking units of offshore banks a bit more limited in terms of transactions with residents compared with wholesale banks. Offshore banks operate in accordance with the Guidelines issued by MAS for offshore banks.

As a part of the liberalisation of the banking activities, offshore banks were given greater leeway in the implementation of wholesale operations with the Singaporean dollar. Limit on loans in SGD to offshore banks was increased to 500 million now, these banks may transact “swap” in the Singaporean dollars in relation to the proceeds from the issuance of Singapore dollar bonds, which are run or released by banks.
In total in Singapore operate 48 offshore banks, and all of them are subsidiaries of foreign banks.

Merchant banks

In addition to these three categories of commercial banks, there are financial institutions that can operate as merchant banks. Merchant banks are approved by Monetary Authority in accordance with the law, and their activity is subject to the directives of the trade banks. Operations of these banks in terms of Asian currencies also performed in accordance with the Banking Act. Typically, commercial banks engaged in the financing of corporate entities, the subscription to shares and bonds issued, mergers and merger of companies, investment portfolio management, management consulting and other reimbursable activities. Most commercial banks with the permission of MAS work with Asian currencies, through which they compete with commercial banks in the Asian dollar market. As for DBU, then merchant banks have no right to demand deposits, savings deposits or borrow from the public. However, they are allowed to accept deposits or borrow from banks, finance companies, shareholders and companies controlled by their shareholders. Total in Singapore there are currently 52 commercial banks.

Financial companies

Financial companies concentrate their activities on a small scale financing, including loans to purchase cars, consumer durables, and extend loans for real estate purchase. Financial companies are licensed and operated in accordance with the Law on financial companies. Financial companies are not allowed to open deposit accounts, which allows withdrawing the funds at the request of checks, promissory notes or payment request. They are not allowed to provide unsecured loans in excess of 5,000 Singaporean dollars to any person or for any transaction in foreign currency, gold or other precious metals or acquire shares, denominated in foreign currencies, equity or debt securities.

However, financial companies with capital of more than 10 million Singapore dollars, may apply for permission to carry out transactions in foreign currencies, precious metals and shares denominated in foreign currencies. Such permit shall be issued, provided that at any time the aggregate amount of credit granted in foreign currency will not exceed 10% of equity finance company.

Some of the major financial institutions operating in Singapore in accordance with a license to provide a full range of services:

  • ABN AMRO BANK NV
  • AMERICAN EXPRESS BANK LTD
  • BANGKOK BANK PUBLIC COMPANY LIMITED
  • BANK OF AMERICA, NATIONAL ASSOCIATION
  • BANK OF CHINA LIMITED
  • BANK OF EAST ASIA LTD
  • THE BANK OF INDIA)
  • BANK OF TOKYO-MITSUBISHI, LTD
  • BNP PARIBAS
  • CALYON
  • CITIBANK SINGAPORE LIMITED
  • HL BANK
  • (HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
  • THE INDIAN BANK
  • INDIAN OVERSEAS BANK
  • JPMORGAN CHASE BANK, N.A.
  • MALAYAN BANKING BHD)
  • PT BANK NEGARA INDONESIA (PERSERO) TBK
  • RHB BANK BERHAD
  • SOUTHERN BANK BERHAD
  • STANDARD CHARTERED BANK
  • SUMITOMO MITSUI BANKING CORPORATION
  • UCO BANK

Singapore is one of the largest and fastest growing financial centres in Asia

Today, there are 111 commercial banks, 49 merchant banks, and 45 banks with representative offices operate in Singapore, managing more than $350 billion of assets (2004). The banking industry in Singapore is regulated by the Monetary Authority of Singapore.

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