Singapore’s Banks Face Tougher Regulations: Should Investors Be Worried?


There are new rules in town for banks in Singapore. The government has announced this week that the banking sector in Singapore will be moving even closer toward regulations designed under Basel III, a series of wide-ranging reforms being implemented in banks globally.

In particular, the government wanted to see stronger regulation in the cash buffer that banks have during times of financial stress.

The Monetary Authority of Singapore (MAS) had consulted both the public and the banking industry on the proposed changes last August and has now finalised the rules; the three local banks, namely DBS Group Holdings (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39), and United Overseas Bank (SGX: U11), will need to fulfill the new liquidity coverage ratio requirement by January 2015.

All banks are not created equal

MAS is only enforcing the new regulation on banks that are considered as systemically important to Singapore, i.e., the local banks. Meanwhile foreign banks operating in Singapore are given the choice to either follow the new regulations or continue complying with the old “Minimum Liquid Assets” (MLA) requirement.

The main difference here between the MLA and the liquidity coverage ratio is that the latter will cover the banks’ foreign currency reserves as well.

The new rules

Basically, the liquidity coverage ratio is focused on ensuring that a bank has enough high quality liquid assets that it can sell in time in order to survive a 30-day liquidity squeeze. Therefore, starting January 2015, the three local banks will need to have enough highly-liquid high-quality assets that are based in Singapore dollars in order to comply with a liquidity coverage ratio of 100%.

The banks will also need to comply with another all-currency liquidity coverage ratio of 60% by January 2015; this particular liquidity coverage ratio will be increased by 10% annually until it reaches 100% in 2019.

Worry-warts, or not

So, I’m guessing after all that banking-and-finance-speak, what you really want to know is this: What do all these changes mean for me if I’m an investor in DBS, OCBC, or UOB? Actually, not much.

With the new regulations requiring higher liquidity, the banks might need to shift a slightly larger portion of their assets into lower yielding but more liquid financial assets. Therefore, the net interest margin of the banks might suffer a little as a result.

However, since the banks were consulted during the drafting of the new rules, they must already have a good idea of what was going to come. This has manifested itself in two ways, for instance: OCBC indicating that it is already complying with the 2015 rules; and DBS being “comfortable” with it.

If you’re a long-term investor in the three local banks, you might not need to worry too much about any substantial negative impacts that might come with the new regulations.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.