LENDING POLICIES OF BANKS IN SINGAPORE By D.Preethika, Roll no. 778.
SINGAPORE BANKING SECTOR – AN INTRODUCTIONSingapore is a flourishing financial centre of international repute servicing notonly its domestic economy per se but also the entire Asia Pacific region.The banking industry is a key player in the country’s financial marketsegment, soon emerging as one of the strongest in the world.Factors such as a sound economic and political environment, conducive legaland tax policies, reputation for integrity, and strict enforcement against crimeand money laundering, have contributed to Singapore’s status as anInternational Finance Centre – the third largest in Asia, after Japan and HongKong.Today there are as many as 108 foreign banks and 6 local banks thatdominate the banking scene.
TYPES OF BANKING1.Commercial banking (catering to businesses and corporations),2.Retail banking (catering to individual members of the public) and3.Private banking (catering to HNWIs) services.
TYPES OF BANKS1.Local Banks2. Foreign Banks – 1. Full Banks – provide the whole range of banking business approved under the Banking Act. Six of the foreign banks operating in Singapore have been awarded Qualifying Full Bank (QFB) privileges. These banks include: HSBC, Citibank, Standard Chartered, Maybank, ABN AMRO and BNP Paribas. 2. Wholesale Banks – engage in the same range of banking activities as full banks, except Singapore Dollar retail banking activities. All wholesale banks in Singapore, operate as branches of foreign banks. Examples: ING bank, National Australia Bank, Barclays Bank, Fortis Bank, Deutsche Bank etc.
3. Offshore Banks – engage in the same activities as full and wholesalebanks for businesses transacted through their Asian Currency Units (anaccounting unit, which banks use to book all foreign currency transactionsconducted in the Asian Dollar Market). The banks’ Singapore dollartransactions are separately booked in the Domestic Banking Unit (DBU). Alloffshore banks in Singapore, operate as branches of foreign banks.Examples: ICICI Bank Ltd, Korea Development Bank, Bank of Taiwan, Bankof New Zealand, Canadian Imperial Bank of Commerce etc.4. Merchant banks – provide corporate finance, underwriting of share andbond issues, mergers and acquisitions, portfolio investmentmanagement, management consultancy and other fee-based activities.Most merchant banks have, with MAS’ approval, established ACUs, throughwhich they compete with commercial banks in the Asian Dollar Market. Intheir DBU, they may accept deposits or borrow only from banks, financecompanies, shareholders and companies controlled by their shareholders.Examples: Credit Suisse Singapore Ltd, Barclays Merchant Bank SingaporeLtd, ANZ Singapore Ltd, Axis Bank Ltd etc.
TYPES OF LENDING1. Residential Real Estate Lending:Long Term Amortising LoansFlexible Revolving FacilityMulticurrency LoansWe offer a range of interest rate options, including:SGD term loans based on the Singapore Swap Offer Rate(SOR)Cost of Funds-based interest rates for revolving facilities andmulticurrency loansThe ability to lock in interest rates for 1, 3, 6, 9 and 12 months
2. Commercial Real Estate FinancingWe provide our clients with commercial propertyfinancing through OCBC Bank, in various majorcities around the world.3. Loans on Insurance PoliciesWe provide financing for Universal Life Insurancesingle premium policies issued by approvedinsurance companies.
TRENDS IN LENDING POLICIESTotal bank lending in Singapore rose 1.9 percent in December from November2012 .Total loans and advances, including bills financing, rose to S$481.74 billion inNovember from S$479.42 billion in October.Singapores total bank lending continued to rise in November, the latest figuresfrom the Monetary Authority of Singapore .Bank lending to businesses decreased slightly to S$276.98 billion from S$278.1billion in the previous month.Loans extended to consumers totaled S$204.76 billion, up slightly from S$201.36billion in October.
LENDING POLICIES - CONTINUEDOf the $37.1 billion of syndicated loans this year, $31.4 billion have been toproperty, energy or resource companies, Bloomberg data show.Loans to agriculture and mining companies jumped 320 percent in October fromOctober 2011, according to figures from the Monetary Authority of Singaporereleased Nov. 30.Loans to manufacturers rose 52 percent while building and construction lendingincreased 23 percent.When compared to last year, there is an increase in the overall amount of activityin commercial real estate lending.
LENDING POLICIES - CONTINUEDA major commercial property investment trend has been some increasing activitydue to the current decline in viable residential investing options. Due to manyinvestors who would rather avoid property ownership, the lack of real estate inbusiness opportunity investing is an attractive aspect.Average auto loans on the riseAs the government aims to curb the car population further, the supply ofcertificates of entitlement (COE), which are required for car ownership inSingapore, has declined. This has resulted in an increase in the price of new carsin Singapore and lower registration rates. COE for bigger cars above 1,600 cceven surged past S$80,000 in March 2012 – a development which causedaverage auto loan size to soar. In addition, high average loan size can also beattributed to growing demand for luxury cars such as Porsches and BMWs inSingapore.
OBSERVATIONSConsumer lending remains positive despite economicslowdownThe economy in Singapore has been negatively affected byglobal economic uncertainty. However, demand for consumerloans continues to increase, albeit at a slower pace thanbefore. Housing loan demand is slowing gradually in 2012 asthe impact of the cooling measures and expected economicdownturn start to sink in. Other personal loans have faredfairly well, especially following the boom in the pawnbrokerarea due to the doubling in the price of gold.
Consumer lending performance set to improve overforecast periodAs a result of the new rules to curb excessive propertyinvestment and the car population in Singapore, both housingand auto loans growth rates are expected to decline during thefirst years of the forecast period. Therefore, consumer lendingis expected to slow although the number of loans will continueto increase. Despite this, property developers are engaging inpromotion and marketing to entice buyers while in the autoindustry banks and finance companies are giving incentives viahigher commissions to car dealers and offering cash rebatesand free first-month instalments to car buyers. As a result, inthe long run consumer lending performance is expected toimprove, with growth rates within the area set to rise.
Mixed response to tighter enforcement ofmoneylendersThe government has implemented additional rules toimprove protection for vulnerable borrowers frommoneylenders. These rules include using Effective InterestRates, extending interest rate caps for larger groups ofborrowers and abolishing upfront fees and all alternatives tounsecured loans. However, this might result inmoneylenders refusing to lend to unprofitable lower-incomeborrowers – a development which in turn may force thelatter to resort to borrowing from unlicensed moneylenders.