Will Stricter Financial Regulations in Indonesia and Other Asian Countries Affect Singapore’s Banks?

Singapore‘s the financial hub of the Southeast Asia region. In fact, the three largest regional banks are Singapore’s very own trio of banking giants: DBS Group Holdings Ltd (SGX: D05)United Overseas Bank Ltd (SGX: U11) and Oversea-Chinese Banking Corp Limited (SGX: O39).

But, with countries such as Indonesia and India pushing for more transparency in the outflow of capital from their countries, will such moves add pressure to Singapore’s banks with high net-worth individuals in countries like Indonesia facing a higher barrier when it comes to moving some of their wealth away?

Local banks in Singapore are looking toward private banking – the provision of banking and investing services to wealthy individuals – as a big avenue for growth.

In 2009, OCBC had acquired ING Asia Private Bank (since renamed as Bank of Singapore) as a bet on the rise of private banking in Singapore. When Bank of Singapore was launched in 2010, it had assets under management (AUM) of US$23 billion; at end-September 2014, the private bank was managing more than US$50 billion in assets.

In the meantime, DBS is setting its sights high with an aim to grow its private banking arm’s AUM considerably from US$71 billion at the moment to more than US$100 billion in three years’ time by tapping on the growth in wealth of China’s population.

According to a study done by Deloitte, some US$470 billion in private banking assets currently reside in Singapore.

The increased oversight on the outflow of capital from Indonesia’s tax authorities would likely put pressure on the private banking arms of Singapore’s banks. Indonesian clients alone account for 30% to 50% of the total private banking business in Singapore, according to a banker that Reuters spoke to.

But, the current pressure might only be temporary as both the private banks and its clients will likely move to comply with any new rules and regulations. Meanwhile, Singapore still remains an attractive destination for wealthy individuals to move their capital to given our nation’s stable economy, governance, and currency.

Foolish Summary

After the Great Financial Crisis of 2008/09, increased oversight of the financial sector has been occurring in many countries. It would seem that this trend’s here to stay and both private banks in the region and their clients would need to get used to the changes.

As the private banks start getting a better grasp of the situation with the passage of time, the current uncertainty should lessen in the future.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.