Foreign banks have continued to expand their operations here, and many have made Singapore a regional or even global platform for important banking services. The local banks have strengthened their capabilities and expanded their range of business activities. They have built up their management teams, and made significant infrastructural investments to enhance their operational effectiveness. Fees and commissions have risen as a proportion of operating income. Banks are offering new business services, while continuing to provide affordable banking facilities to the average Singaporean. They have held their own despite the increased competition. For instance, their market share of resident non-bank deposits (both ACU and DBU) has declined only marginally from 62% to 59% over the last five years. The local banks have also improved their business and risk management capabilities. The recent change in MAS’ capital adequacy requirements is in recognition of local banks’ efforts to upgrade their risk management capabilities, and should allow them to manage their capital more flexibly. With greater financial strength from the mergers and increased competition at home, local banks have begun to venture abroad and develop a regional footprint through overseas acquisitions. Banking liberalisation When MAS embarked on the liberalisation measures, we sought to anticipate changes and trends that we were convinced were already underway. Events since then showed that we moved none too soon. Technological advances have continued unabated. The Internet for instance has proven to be an efficient and widely used alternative distribution and marketing channel, and has helped create new business models.
Firstly, banks need to continue to maintain high prudential standards so as to remain sound institutions. Next, they have to develop new strategies to continue growing strong, viable businesses. Sound institutions MAS does not seek to prevent institutions from taking risks. It is the business of financial institutions to take on and intermediate risks. But if risks are not well managed or events turn out unfavourably, institutions can incur substantial losses. No amount of regulation or supervision can completely prevent losses. On the other hand, over-regulation would curb innovation and enterprise. This was a key message in MAS’ Monograph on the Objectives and Principles of Financial Supervision in Singapore. Financial institutions therefore need to build their capacity to identify, monitor, and control the risks that they take. Banks should benchmark their risk management against international best practices. Risk management should be an integral part of their operations, and should keep pace with their business profile and with industry developments. The banking sector as a whole has done well in this respect, and we expect to see this continue. One major change in the way banks manage risks will be triggered by the new Basel Accord. Implementing Basle II will be a complex exercise but will spur banks to enhance their risk management practices. Banks need to develop robust systems and processes to make the new capital adequacy rules work.