Singapore Banking System

Prepare a report on Singapore banking system.


Banking system is one of the most crucial and important financial institution of the world due to its importance at every part of the economy from consumers to buyers and others. It helps in the smooth flow and mobilization of economy’s financials. Banks is a financial institution that facilitate with money holding ability which is either deposited by the consumer to the bank or payable to the consumer when there is a need. However, the system is not that easy as it seems like, it is one of the most complex financial institutions that carry out day to day transaction needs of consumers (Rezvanian & Mehdian, 2002). Moreover, it also provide loans to the business and individuals whenever they need it. Banks also perform other functions efficiently such as check facility, investment scopes and others. 
Singapore is known as one of the leading centers globally in terms of financial help and facility. It also facilitate as the biggest distribution hub in the whole of Southeast Asia. This has enabled the country to build up a string banking system with 700 local and foreign banks under them and carry out unmatchable asset management. It forms a crucial part of the stock exchange, investment banking and insurance services as well. Such a strong hold in financial institutions has helped the country develop into one of the most developed nations (sgbanks, 2018). The report studies the history of the banking system of Singapore and the whole structure followed by the institution on various grounds. Further is discusses the performance of the banking institution and the problem they are facing over the years in their regulations and cash handling abilities.

History of Singapore Banking System

The history of banking system of Singapore lie back to 1970 after the Banking Act of 1970 laid the foundation of starting a local as well as foreign banking bodies in Singapore. This act was the successor of the Banking Ordinance of 1962 and the Banking Act of 1965. The act was passed with the objective of developing a robust banking institution and practices in Singapore. It also aimed at attracting foreign financials, vestments and to help the country grow in an unexpected manner. The operation of this banking sector started in January 1, 1971 just after the introduction of the act (, 2018). This was done to establish the main authority of the banking sector was The Monetary Authority of Singapore (MAS). The authority was given various powers over the banking system of the country such as monitoring the monetary policy of the country, act as an agent of the government, maintaining the foreign reserves and regulate the banking facilities and operations. This in turn was done by keeping in mind the growth potential of Singapore’s financial industry. On the other hand the currency handling right was given to Board of Commissioners of Currency Singapore (, 2018). However before the setting up of this banking institutions the whole financial work of the country was take care of by the Central Bank. 
The de facto Central Bank of Singapore the MAS was first proposed in the country in 1969 after it was raised by the Minister of Finance Goh Keng Swee. The need for central bank was raised due to the unbearable and untidy condition of monetary system of Singapore. The performance of the monetary system at that time was quite good with proper supply of money. However, the departments involved in this monetary system was all scattered and it became difficult for them to arrange and manage things under one roof. This made it necessary for the Ministry of Finance to introduce a central banking system so that all the departments come under one head (, 2018). Thus a bill was proposed by Monetary Authority of Singapore in 1970. However, the bill was further defended by Hon Sui Sen, who succeeded Goh in Ministry of Finance. This is because he was of the view that the government organizations were well managing the monetary system. However, with all the severity faced by the bill, in the end the bill was passed in 26th December 1970 and the Ministry Authority of Singapore Act was also formed. The authority commenced with their operations in 1971 to control the work of Singapore banking system (, 2018).

Regulation in Singapore Banking System

The banking system of Singapore also follow various regulations under them to keep a control on the monetary system of the country. MAS which is the head of the financial institution of Singapore carry out all the banking related laws of the country such as banking, insurance, investment and other financial transactions. The legal framework of banking regulation in the country such as the Singapore-Licensed Banks fall under the banking Act and the MAS Act. Thus, the main regulation of the banking institution in the country is supervised by the MAS (practicallaw, 2018). Other than these two acts there were other legislations which the banks of Singapore had to follow such as notices, guidelines, practice notes, code of conduct and others which is issues by the central bank body MAS from time to time. 
The main regulator of the banking system in Singapore is MAS which is also considered the central bank of the country. The board of directors of the institution is responsible and abide by all the MAS policies and keep the government updated about various regulatory, supervisory and monetary policies that the banking institution follows (practicallaw, 2018).. The main principle of MAS Act are:
?  To maintain the price stability in the country from time to time and to ensure smooth growth of the economy
?  To establish as better financial center and financial stability in the economy
?  Careful and effective management of the foreign reserves of the country 
?  Lead the country as one of the best and established international financial center
Other regulations that the banking system follows under the Banking Act is that it is necessary that a bank that has been licensed under the system has to appoint an auditor on an annual basis to audit its system and it should be approved by MAS (practicallaw, 2018).. The auditor will be responsible to carry out audit in the banking accounts and give the report to the central bank regarding any problems. 
There are various licenses that a financial institution need to get before running any banking services. There are major three licenses under it which the bank operating in Singapore needs to follow depending on their functions are a full bank license, a wholesale bank license and an offshore bank license. Full bank license will help the bank in engaging in all types of banking functions such as accepting deposit, cheque services and others. On the other hand whole sale license allows bank to carry out all business like full bank except the right of carrying out any activities in retail banking. Thirdly the offshore license levy strict rules of carrying out dollar accounts that is stated under the Operations of Offshore banks which is published by MAS from time to time. Further these licenses allows the banks in Singapore to operate Asian Currency unit after prior approval of MAS (practicallaw, 2018). There are others rules of the banking corporations such as Banking Corporate Governance Regulation 2005, guidelines for corporate governance for banks, direct insurers, and others in Singapore. Other regulation imposed by MAS in Singapore banks are the MAS Notice 637 that implements Basil 3 standards on Singapore incorporated banks (Feng, 2015). 
Further there are liquid requirement limit set for banks under the Section 38 that is laid down in Banking Act and other Liquidity Coverage Ratio put forward by MAS. The regulations are that the banks should maintain at least 100 percent Singapore dollar (practicallaw, 2018). However, other banks other that those incorporated should maintain at least 50 percent LCR currency.

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Role of Central Bank in Singapore

The central bank of Singapore that is MAS implements and run all the important function of the economy such as monetary policy, exchange rate policy, issuing currency and many other functions. The most important regulation it follows is by acting as the banker to all banks in the country. Since April 1977 the central bank MAS is also responsible to carry out regulation function of insurance industry under then and the regulation function of Securities Industry Act in 1984. It is the head of the banking institutions and acts as the major financial agent of the government. All the important policies of the economy related to financial bodies are run by MAS (Feng, 2015). The most important role that the central bank plays in Singapore banking system is to issue notes and coins. It is the sole body responsible to issue notes and release in the economy. However, the amount to be issues and the denominations is determined by looking at the monetary policy of the country. The bank notes and coins that are issues by MAS becomes legal tender in the economy. It also acts as the banker to the banks in which the commercial banks approaches MAS for any cash needs. It also act as a financial agent to the government as the government approaches the central bank in case there is a cash need. In this respect they sell government deposits to the bank in exchange for money. In all the central bank acts as a supervisor to all the financial institutions of the country (Feng, 2015). It keeps a check that the billion dollar institution is running smoothly without much complexities in its operations. It also acts as a controller of foreign reserves and holds all foreign reserves of the country under itself. 
Other than this there are other functions that recently MAS has come up with such as being a regional leader of FinTech. Under this the institution aims to develop player’s ecosystem, better talent pool regulatory environment and others. Recently the central bank also introduced the Industry Transformation Map to create 3000 jobs in the banking sector (Feng, 2015). This shows that central bank also acts as an employment creation body in the economy.

Structure- Different Types of Banks

The banking industry of Singapore is divided into various structures and sub structure consisting of various types of banking institutions and every institution has its own function to play. The main categories of bank which is mainly seen in Singapore are universal banks, commercial banks, retail banks, and merchant banks. Every bank under these categories has their own role and functions. Singapore has 125 total commercial banks operating in the country which is further divided into other sub categories such as full banks, the offshore banks and the wholesale banks. The full bank has the responsibility of carrying out required banking activities for both household and corporate customers living in the home country or abroad (sgbanks, 2018). It has to comply to the Financial Adviser Act and Securities and Futures Act in order to function smoothly.  The full bank is further categorized as the local full banks and foreign full banks. 
The wholesale banks has the function of carrying out all the functions of a banking institution in a restricted manner as they are not allowed to conduct any retail activities. They have a restriction which make it different from full banks. The examples of such banks are Deutsche Bank, HSBC Private Bank and others. Further offshore banks enjoy very different function of managing offshore banking activities of the economy. They are approved by MAS to offer financial support to other financial institutions. However, they also face a restriction while dealing with the customers as they have to see whether they are citizen of Singapore or not. Example of such banks are Barclays, DNB and others. The next category is merchant banks which has been given the rights of the banks by MAS under section 28 (sgbanks, 2018). However, there powers are limited compared to other commercial banks. Other types of banks also available in the economy are investment banks and private banks. The former has the function of offering investment opportunities to the customers and the latter offer private banking services except deposit facilities.

Performance of Banks in Singapore

Singapore has been able to become one of the leading financial sector of the world by its performance. Today Singapore holds about 700 local and foreign banks under them providing wide range of services to customers and corporates. Till 2005 it was seen that the bank held about 230 billion US dollars under them as assets/liability. It is said to be one of the flourishing international financial institution serving the entre Asia Pacific (Rezvanian & Mehdian, 2002). There are various factors that has contributed to the success of banking system of Singapore such as:
?  The liberalization of domestic banks
?  Strengthening the power of the local banks by indulging in merger and acquisitions
?  Fast and successful expansion of foreign banks serving great banking services to the foreigners
?  Introducing innovative products and banking schemes from time to time
These and many other factors contributed to the success of the banking sector of Singapore. The central bank of Singapore launched a liberalization plan for the banking system to strengthen it not only in its own market. To strengthen it also internationally. For the purpose it introduced a new category of license for the Full Bank with the name of Qualifying Full Bank which the foreign banks need to take up. This helped the Singapore banking system to become one of the leading private banking destinations for some of the most attractive investors. This was because of its strict banking laws, non-recognition of the tax directives of 2005 European and tax incentives (sgbanks 2018). The banking sector of Singapore has also earned the characteristics of solid credit profile, steady funding and strong liquidity position which helps them to overcome risks as well. The sector is also able to increase its foreign exchange trading for years with a surge in its volume of foreign exchange. All these factors suggest that the banking system of Singapore are able to show great performance and will continue to do this for years to come.

Problems with the Banking System

Along with the strength the financial sector of Singapore also faces various problems within its operations as well as from the economy that affected their performance adversely. The weaknesses of Singapore banking sector is visible since 2016 from its slow performance and the negative impact it is receiving from poor economic condition. In 2016 it is seen that the financial sector of Singapore received a continuous drawback in its sector due to poor performance and lack of balancing (YAHYA, 2016). From the data passed by the Ministry of trade and Industry it is seen that in the recent times the financial sector of Singapore faced a downfall in its growth rate which shrink to 11.2 percent. This happened in the first quarter of 2016. The weakness of the sector was visible from the continuous slack in the growth rate by 14.2 percent for the first three months of 2016. This made the situation worsen for one of the leading sector of the economy that is the financial sector. The loan volume of the bank also slipped by 6.2 percent in the first quarter of 2016 showing the poor degrading performance of the sector. Such as poor growth in the banking sector of Singapore was due to poor economic conditions that persisted in that year. According to YING (2016) the poor performance of the Singapore bank is the impact of poor economic conditions that hit Singapore in recent years. This place huge pressure on the financial sector of the country. Singapore strong banking base was assumed to survive such slackening economic condition and help the country to revive. However, the situation went worse and the banking system got affected adversely. According to YING (2016) report situation of Singapore economy is suggested to get worse in the coming years. This will be because of its slow GDP growth rate. In 2016 Singapore received a GDP growth rate of only 1.8 percent which is the worse from past few years. This has downturn the credit cycle of Singapore which is said to get worse in coming years. Coming years might help the banks to revive from the slow growth rate; however, the rate of growth will remain flat in upcoming years which will bring down the asset quality and profitability (econotimes, 2017).


From the above discussion is can be concluded that the banking sector of Singapore is one of the leading and string sectors; however, the sector is receiving poor growth performance from past two years due to slow economic conditions. The banking system of Singapore is huge and carried out various regulations and powers, which every bank needs to follow whether they operate in the home country or abroad. This has helped the financial sector of the country to set up a strong international banking system as well and has flourished in the entire Asia Pacific. Along with this there are various types of banks operating in Singapore such as commercial banks, merchant banks, offshore banks and others financial companies. These broad categories of banks are further divided into many sub categories such as Full Bank, Wholesale Banks, Offshore Banks and others. Each of these banks have their own role to play and faces certain restrictions. They also need t get their desired licensing in order to operate themselves as a bank. Other than this there are other regulations that the banks need to follow, which is put forward by central bank of Singapore MAS. MAS is the de facto central bank of Singapore and came into existence in 1970 and started operating from 1971. MAS has various roles to play in the financial sector and take care of the banking industry of the country. The institutions play various role such as banker’s bank, government bank, and lender of last resort, note printing rights and others. This shows that all other banks of the country operate under MAS and rely on it for some facility or the other from time to time.


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