SINGAPORE BANKING INTO THE NEW MILLENNIUM

Abstract

With the ongoing globalisation, deregulation and liberalization trends, it is clear that there have been some changes in the economic landscape of the banking world. It is imperative to note that these changes are not short-term, but long-term changes which will reshape what it takes for banks to survive in the 21st century. The past decades have also seen an extraordinary technological revolution in information technology (IT). Intra and inter-countries' communications has been made easier and affordable. Clearly, the world of banking is no longer defined by national, regional or international factors. Also, the rapid pace of advances in IT has a profound effect on the financial sectors, especially the banking industry. Unlike other neighbouring countries, Singapore is not severely hit by the Asian Financial Crisis because of the presence of strong fundamentals and a sound banking industry. Hence, the crisis highlighted the importance of having a sound banking industry. Though Singapore managed to recover faster than most neighbouring countries, the Monetary Authority of Singapore (MAS) decided to further strengthen Singapore's financial industry, especially the banking industry. This will serve to help Singapore to maintain its position as an International Financial Centre (IFC). On 17th May 1999, MAS announced a programme to liberalise commercial banking and to strengthen corporate governance of local banks. This programme will lead to a more open and competitive environment, which will in turn encourage the development and upgrading of local banks. Local banks are encouraged to upgrade in order to hold against the international foreign players. They may even have to devise new strategies to maintain their market shares of the banking industry. The competition is no longer on the number of "bricks-and-mortar" branches. Instead, local banks must provide quality-banking services to the customers. While liberalizing the banking industry, MAS must maintain the confidence and stability in the banking system. Timing of the liberalization programme must be well paced so as not to jeopardize this confidence and stability. As the banking system is a key component of our economy, significant local banks' presence in Singapore is deemed necessary. Strong domestic banks will have interests in line with the interests of Singapore and can help Singapore ride through major crisis. Therefore, a financial system will be more stable and resilient if local banks own a significant po11ion of the market share. MAS views that as Singapore has a small domestic market, it has room for only two large local banks while the smaller players will have to occupy niche markets. It is hoped that these two large banks will act as pillars of strength and stability in the financial system.