2007 presented the best and worst of times for the Singapore banking sector. It boomed amid a buoyant property market and humming wider economy, then took some hits from the US sub-prime mortgage crisis and the volatile equity markets that triggered.
1. US sub-prime crisis
IT WAS an obscure term six months ago, but now the word 'sub-prime' keeps the banking world awake at night. It refers to the millions of dollars of United States home loans made at very low rates to people with dodgy credit history.
Banks packaged these mortgages with sounder loans into complex securities called collateralised debt obligations (CDOs) and sold them on to other investors at prices that did not reflect the risky assets - the poison pills - backing them.
In quick succession, Wall Street and European powerhouses dropped bombshells about their losses from exposure to CDOs and other intricate products. At last count, write-downs exceeded a combined US$50 billion (S$72.9 billion) but the clock is still ticking.
Accusatory fingers are being pointed not only at bankers and ratings agencies that gave the securities AAA-backing but also at global economic expansion.
It has been the period of unprecedented global growth which has beguiled investors into under-pricing risk, says former Federal Reserve chairman Alan Greenspan, who has dubbed the sub-prime crisis 'an accident waiting to happen'.
Fortunately, Singapore banks have taken only a few flesh wounds, thanks to their limited exposures.
Last month, OCBC Bank announced write-downs of $221 million for its CDO holdings, slashing the value of its portfolio of CDOs from $270 million to $48 million. DBS Group Holdings made $70 million in allowances for its $275 million in CDOs exposed to sub-prime loans. United Overseas Bank's (UOB's) provision stands at $55 million.
But the local banks are not ruling out further write- downs. Meanwhile, global giants such as Citigroup, UBS and Merrill Lynch have seen heads roll and new bosses installed to restructure and cut costs.
It seems inevitable that more drama is to come. Experts estimate another US$200 billion (S$291.5 billion) of sub-prime linked write-downs are in the wings, triggering economists' warnings that it is prime time for a sub-par performance in the US economy and beyond.
2. Mega bank deals
TEMASEK Holdings and the Government Investment Corp (GIC) made a string of high-profile transactions related to stakes in some of the world's largest banks.
The headline grabbers include Temasek's purchase of a 1.77 per cent stake in Barclays for US$2 billion in July, followed five months later by GIC's US$9.75 billion purchase of a 9 per cent stake in Swiss giant UBS.
Temasek also raised its Standard Chartered Bank stake to 13 per cent and was reported to have taken part in the initial public offering of India's ICICI Bank.
But a backlash against sovereign wealth funds aggressively buying substantial stakes in companies of 'iconic' value to a country has also prompted Temasek to pare some of its existing bank stakes.
It sold US$255 million worth of shares in China Construction Bank and a US$571.5 million stake in Bank of China early this month.
But others have speculated it is taking profit on its Chinese bank stakes to build a war chest for a purchase in European or US banks whose share prices have been battered.
There are already strong rumours that it is ready to shell out US$5 billion for a slice of Merrill Lynch.
3. Change of CEOs
AFTER more than three decades as chief executive officer (CEO) of UOB, chairman Wee Cho Yaw passed the reins to his son Ee Cheong on April 27. The outgoing CEO said the transition marked the 'proudest' moment of his career to see a third generation of the Wee family at the helm.
Unlike the widely anticipated UOB succession, the stepping down of Mr Jackson Tai as DBS chief has sparked intense speculation about his successor. Mr Tai said he is leaving for family reasons after eight years with the group.
4. Consumer banking push
ONCE the neglected stepsister of DBS Bank, POSB was given a $35 million makeover this year.
It is part of a push by DBS to harness the power of one of the best-known banking brands in Singapore and grab market share in consumer banking.
Some analysts say it may also be a reaction to moves by OCBC and Citibank to grow their distribution networks.
5. $500 credit card
THE spotlight has squarely been on the unsecured credit market as it matures and the number of wealthy people in Singapore increases.
The banking regulator is proposing some significant rule changes on income requirements and credit limits.
A very different type of credit card - with no minimum income requirement and just $500 in credit - made its debut in July. Citibank was the first to launch the card that targeted students and young adults.
It followed proposals by Singapore's banking regulator in February to change the rules on income requirements for borrowers. It also reduced the minimum annual income requirements for people who want to borrow without collateral - from $30,000 to $20,000, but they will still be unable to apply for credit cards.
A 'more conservative' maximum credit limit of twice the borrower's monthly income will also be imposed for those earning $20,000 to $30,000. Changes were also proposed for credit granted to high earners. Limits for those earning at least $120,000 a year will be lifted from the two months' salary maximum applying now to all credit cards. Some bankers tip it could go up by up to 10 times one's salary.
6. China units set up
SINGAPORE banks, like those worldwide, redoubled efforts to get a piece of the action in China this year.
DBS was the first bank to get approval from the Chinese regulator to set up a subsidiary in Shanghai in June. OCBC followed suit in September while UOB announced that it got the green light this month.
While all three banks have said they do not expect their China units to contribute significantly to their group profits, they have been actively growing their staff and branch networks there in anticipation of a burgeoning customer base.
7. Mortgage mania
FIRST came the furore over transparency of mortgage rates, then came the surge in home loan business.
Criticism had been levelled at the banks since the middle of last year about the lack of transparency over how board rates are determined and changed.
In response, the Association of Banks in Singapore said in June that all member banks had agreed to disclose the indicators and official rates that determine their mortgage levels.Mortgages then stayed in the limelight, thanks to the booming property market. Home loans growth every month since May has been in the double digits, while building and construction loans also saw robust gains.
8. High cost of talent, office space
IT'S BOOM time in Singapore's wealth management and finance sector - and demand has been rising faster than supply in more areas than just talent.
As more private banks, hedge funds and finance houses set up shop here, the shortage of office space in the central business district has become as acute as the poaching wars for talent across the area.
Companies have been coping by either swallowing the higher rents, relocating to cheaper locations or squeezing their staff into ever-smaller spaces and converting conference rooms into office cubicles.
Easing the shortage of skilled staff is a bit easier with private banks such as UBS and Credit Suisse setting up training programmes.
9. Anti-money laundering
SINGAPORE'S reputation as a financial hub comes under the spotlight. The European Commission (EC) has been negotiating a trade deal with the Republic since 2005, but parliamentarians said recently that the country's banking laws did not meet some of the EC's criteria for the trade pact.
The EC expressed concerns that Singapore may become a shelter for funds exiting the European Union after the EU required member nations to impose a withholding tax on their citizens' offshore savings.
Foreign media reports accused Singapore of being a money laundering centre for Myanmar's leaders. The Financial Times alleged that Myanmar's leaders were 'hiding large sums' in Singapore and using the country as a 'financial haven'. The Monetary Authority of Singapore refuted the allegations, stating that Singapore 'operates a rigorous regime against money laundering and financing of terrorism'.
10. Islamic banking
SINGAPORE got its first locally-based Islamic bank this year when DBS pumped US$250 million into a new unit called the Islamic Bank of Asia.
The bank did not just represent DBS' ambitions to tap the booming market based on Islamic banking principles but also reflected Singapore's push to become a gateway for Middle Eastern investors who are keen to explore Asia's opportunities.
More financial institutions specialised in Islamic finance have been attracted to set up shop in Singapore in recent months. In April, Bahrain-based Arcapita Bank opened its Singapore office, focusing initially on real estate and infrastructure investments in Singapore and in the rest of South-east Asia.
|Is this article useful to you?