SHORT-TERM MONEY MANAGEMENT PRACTICES OF NON-BANK FINANCIAL INTERMEDIARIES IN SINGAPORE

Abstract

With the rapid emergence of Singapore as a regional financial centre, non­ bank financial institutions (NBFis) here have a. even greater role to play. In order to meet the requirement of this new role, they have to be more efficient overall, especially in funds management. Liquidity management, or short-term money management, is one important aspect in the operations of the NBFis. Their ability to meet its day-to-day obligations with sufficient liquidity while at the same time not to have idle cash is an important factor for their success and survival in the long run. This area has not been previously researched on as it is believed that their management techniques are similar to that of commercial banks. This study thus aims to explore the common practices of short-term money management in the NBFis in Singapore in order to understand better their operations. This academic exercise deals only with finance companies and the Post Office Savings Bank of Singapore (POSB). This is because the former dominates the NBFis while the latter undertakes many activities which constitute commercial banking functions. The regulatory framework that governs these institutions is also examined to account for some differences in their practices. Although the POSB is larger in size and more sophisticated in its operations, its management techniques are, in general, similar to the finance companies. It is also observed that liquidity management practices are in broad conformity with those suggested in theoretical literature. In terms of the factors affecting liquidity management, both external and internal factors are examined. It is found that the smaller finance companies follow a more conservative management philosophy than the bigger ones. In addition, the former usually takes a very liquid position when managing their funds. In estimating liquidity, all institutions depend on cash flow tables and statistical methods such as graphs. However, heuristics and experience are also indispensable in forecasting their liquidity needs. Seasonal and random fluctuations are, to a certain extent, incorporated into the estimation. In meeting liquidity, various options are available. When deploying excess funds, the interbank market is often more popular than the money market. Depositing funds with merchant banks is a common practice. When there are fund shortages, alternatives like the sale of liquid assets are adopted. The asset portfolios of smaller finance companies are relatively less sensitive to interest rate changes than those of bigger finance companies and the POSB. Finally, there are many uncertainties over the volatile interest rates and exchange rates, and the increasing competition faced by the NBFis. They must thus continue to be innovative and efficient to take advantage of future opportunities.