Banks in Singapore will soon be required to keep certain amounts of easy-to-sell assets on hand in the country to support themselves in times of stress.
The new liquidity framework applies to lenders with a “significant retail presence” in the country and covers all currencies, Lim Hng Kiang, the deputy chairman of the Monetary Authority of Singapore, or MAS, said in a speech last night. Banks will also need to hold liquid Singapore dollar assets separately to manage their liabilities in the local currency.
The so-called liquidity coverage ratio is part of an overhaul of banking standards by the Group of 20 nations in response to the financial crisis that followed Lehman Brothers Holdings Inc.’s 2008 collapse. MAS’s proposal comes six months after it warned that rising global interest rates could weigh on household and corporate debt and pose risks for banks.
The requirement for overseas currency exposures “is going to be a huge challenge for banks in Singapore, which is a major foreign-exchange center and where the local economy is not the lion’s share of the business,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., said by phone today. “It may be fine for banks in Ohio because there’s no foreign exposure, but not in Singapore.”
Under the global rules formulated by the Basel Committee on Banking Supervision, banks must have enough assets on their books that they can sell to survive a 30-day funding squeeze. The regulations, which allow assets ranging from cash and central bank reserves to government bonds and some corporate debt, are set to be phased in from next year.
Foreign banks will need a Singapore dollar liquidity coverage ratio of 100 percent, Lim said, meaning they would have to hold enough high-quality, liquid assets to match net cash outflows during a month of stress. He didn’t specify a deadline for meeting the requirement.
The coverage for other currencies will be 50 percent as their head offices are probably subject to similar ratios, he said. Citigroup Inc. (C), HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN) are among foreign banks operating in the country.
Standard Chartered is “well-placed to comply with the enhanced liquidity requirements” and supports the final ratio framework, Neeraj Swaroop, the U.K. lender’s Singapore chief executive officer, said in an e-mailed response to questions. HSBC seeks to abide by rules and requirements of the countries in which it operates, Gareth Hewett, a Hong Kong-based spokesman at the London-based bank, said in an e-mail.
For foreign banks, “while MAS recognizes that there may be cost efficiencies in managing liquidity centrally at the group level, there can be significant obstacles to the free movement of liquidity across borders during a stress scenario,” said Lim, who is also the minister for trade and industry.
MAS will consider a bank as having a significant retail presence if its share of resident customer deposits exceeds 3 percent, and if it has more than 150,000 depositors with balances of as much as S$250,000 ($200,000).
For the country’s three local banks -- DBS Group Holdings Ltd. (DBS), Oversea-Chinese Banking Corp. (OCBC) and United Overseas Bank Ltd. (UOB) -- the requirement for a 100 percent Singapore dollar liquidity coverage ratio will be set for the start of 2015, Lim said. Coverage for other currencies is set at 60 percent from 2015, increasing to 100 percent by 2019, he said.
OCBC already complies with the liquidity framework for 2015 and DBS is “comfortable” with the requirements as they’re in line with Basel III rules, the banks said in separate statements.
Singapore’s monetary authority separately issued a consultation paper today to propose a framework for lenders in the city-state to be identified as domestic systemically important banks.
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