Tougher capital rules for banks

RACHEL ADRIENNE KELLY

rachel@mediacorp.com.sg

SINGAPORE

Basel III is the new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision in the wake of the 2008/2009 financial crisis.

Singapore has set its capital adequacy requirements (CAR) two percentage points above what is required by Basel III. The MAS will require Singapore-incorporated banks to meet a minimum Common Equity Tier 1 (CET1) CAR of 6.5 per cent. Meanwhile, Tier 1 CAR will be increased to 8 per cent from 6 per cent. The total CAR will remain unchanged at 10 per cent. These compare with the Basel IIIBloomberg, based on figures compiled by the financial news and data services provider. DBS and UOB were ranked fifth and sixth, respectively.

minimum requirements of 4.5, 6 and 8 per cent for CET1 CAR, Tier 1 CAR and total CAR.

Oversea-Chinese Banking Corp (OCBC), United Overseas Bank (UOB), DBS and Citi Singapore fall under the new rules and the MAS wants them to meet its higher minimum requirements by 2015. The lenders are already believed to meet the new Basel III standards.

Explaining the move, Mr Lim Hng Kiang, Minister for Trade and Industry and deputy chairman of MAS, said that each of the local banks was systematically important to Singapore, as they collectively accounted for more than half of the total non-bank resident deposits and loans in Singapore.

As such, higher capital levels are required to strengthen their ability to absorb unexpected losses effectively in a crisis.

“Capital requirements that are significantly above Basel III will not result in a large reduction in economic output but would be beneficial in reducing the likelihood and cost of a crisis,” Mr Lim said last night at the 38th Association of Banks in Singapore (ABS) annual dinner.

Banks that are well-capitalised, prudently regulated, and located in stable financial centres such as Singapore, present an attractive value proposition to depositors and investors, the MAS said.

OCBC CEO David Conner said: “We expect to be able to meet [bUt nOt  a gUArAntee ?]CAR requirements comfortably without having to raise any additional equity, undertake any rights issue, cut any dividends, or change our strategic plans.”  the MAS revised

OCBC was ranked last month as the strongest bank in the world by — The Monetary Authority of Singapore (MAS) yesterday announced tougher capital rules for Singapore banks, raising them to a higher level than those rolled out for Basel III, but the regulator noted that the local lenders were well positioned to meet the new requirements.

Lowest CAR for China's five commercial banks unchanged

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Friday: 7 May 2011

Malaysia Raises Interest Rates to 3% BLOOMBERG

Malaysia yesterday raised interest rates for the first time this year and asked banks to set aside more cash as reserves for a second time, joining India in stepping up the fight against inflation, amid surging oil and food prices worldwide.

Bank Negara Malaysia (BNM) increased its overnight policy rate to 3 per cent from 2.75 per cent. The statutory reserve requirement level will rise to 3 per cent from 2 per cent, effective on May 16.

BNM governor Zeti Akhtar Aziz, the first to raise rates in Asia last year as the region led a recovery from the global recession, is resuming rate hikes after pausing since July as inflation accelerated to a 23-month high.

India boosted borrowing costs this week for the ninth time since mid-March of last year as rising prices force nations to tighten monetary policy at the risk of slowing growth. The South-east Asian nation’s economy may expand 5 to 6 per cent this year, easing from a decade-high of 7.2 per cent last year, according to the central bank.

Regulatory consistency needed to avert crisis repeat SINGAPORE — Experts have called for a global central bank and financial authority to monitor and regulate markets to help avoid a recurrence of the 2008 to 2009 worldwide crisis.

Christopher Howells

christopherh@mediacorp.com.sg

Speaking at a conference organised by the Singapore Management University (SMU) yesterday, central bankers and academics said that leveraging by so-called “shadow banks”, such as hedge funds and investment banks, had made it difficult to track money globally.

Mr Ravi Menon, managing director of the Monetary Authority of Singapore, called for greater global consistency in regulation.

“This high degree of interdependence means that governments in major economies can no longer act in isolation. Regulatory policies must be globally consistent to minimise the risk of arbitrage.

Supervisory actions must be internationally coordinated to maximise their effectiveness,” he said.

Mr Menon added that regulators used to worry about institutions that were too big to fail but now they are more worried about those too interconnected to fail.

This is because cross-border bank lending has exceeded 40 per cent of world gross domestic product.

He stressed, however, that although global policies should be consistent, regulation and supervision must also cater to domestic context and circumstances to be effective.

Mr Andrew Sheng, chief advisor to the China Banking Regulatory Commission, said, “Finance has created a life of its own. It has become very abstract, very virtual and we can create liabilities as if there’s no tomorrow, because we can leverage this.

And the result is, of course, that we now have a crisis of fiat money, money created by the shadow banking system, global credit creation, with no global institution to maintain the hard budget constraint. And the reflexivity between credit creation globally drives interest rates lower and lower and then creates that asset bubble.”

Participants also noted that the rebalancing in the global economy is still ongoing, with the right recipe of regulation, capitalisation and minimising risk still to be addressed.

China extends reserve requirements for top banks

Bank staff enjoy pay boom but ROE lags

Christopher Howell s

christopherh@mediacorp.com.sg

Under the intense scrutiny from regulators and the public, the cash bonus pool for bankers in Western financial centres is estimated to shrink drastically, with the

There is no such rage against well-paid bankers in Asia, where bonuses are on the rise as business improves and competition for talent heats up.

In Singapore, though, there is a disconnect between what bankers are being paid and what shareholders in banks are earning. Bank wages in Singapore have seen a full recovery from the pre-Lehman days but shareholders are still wondering when their return on equity will get back to their 2007 highs.

In the last quarter, combined pay and accrued bonuses at the three local banks was $1 billion, a rise of 38 per cent from the third quarter of 2008, when US investment bank Lehman Brothers collapsed.

The average return on equity (ROE) for the three banks, however, remains well below those pre-Lehman days.

For the three local banks, the average ROE was just above 10 per cent in the last quarter, well below levels that were as high as 16 per cent in the first quarter of 2007.

Meanwhile, all three local banks reported in their last earnings statements that expenses rose partly due to higher bonuses, salaries or increased headcount.Fundsupermart.com.

Analysts say banks don’t have a choice.

[SINGAPORE  BANKS do not have TALENTED  PRODUCTS ?]

Rising competition is forcing them to pay top dollar for talent.

”The competition in Asia is generally quite stiff, especially for top talent. And if you don’t pay competitively then you will actually lose your top talent to other competing banks,” said Mr Wong Sui Jau, general manager at

But while bank employees will probably take home even bigger checks next year, analysts are not convinced that investors in Singapore lenders will also do so.

As investments, Singapore banks here “have been significant underperformers.

This has to do with the fact that the margins of profitability for banks on their lending operations have been extremely squeezed because of very, very low interest rates both in Singapore and developed markets.

And I think this will continue to lead to bank share underperformance”, said Mr Arjuna Mahendran, head of investment strategy for Asia at HSBC Private Bank.SINGAPORE — There may be less cash to go around this holiday season for bank employees in New York and London, but not for their counterparts in Asia.New York Times estimating the decline in London to be between 20 and 30 per cent as compared to last year.