Tougher capital rules for Singapore banks

Tougher capital rules for Singapore banks
By Rachel Kelly | Posted: 28 June 2011 2217 hrs
 
SINGAPORE: The Monetary Authority of Singapore (MAS) has announced tougher capital rules for Singapore banks, setting the revisions at higher levels than those rolled out for Basel III.

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 following the global financial crisis.

In a statement, MAS said Singapore incorporated banks were well capitalised and in a strong position to meet the new requirements.

United Overseas Bank (UOB), DBS, OCBC Bank, and Citi Singapore fall under the new rules to be implemented by the MAS.

Explaining the move, Minister for Trade and Industry and Deputy chairman of MAS Lim Hng Kiang said that each of the local banks was systematically important to Singapore, as together they 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 the banks' 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," said Mr Lim at the 38th Association of Banks in Singapore (ABS) annual dinner.

In deciding on the levels appropriate for Singapore, MAS carefully weighed the costs of additional capital against the benefits, he said.

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.

Holding systemically-important banks to a higher solvency standard reduces both the likelihood of failure and impact to the real economy if one of them runs into difficulties.

Under the global minimum standards of Basel III, banks are required to increase their capital to buffer against unexpected losses.

Singapore has set its requirements for capital adequacy requirements (CAR) two percentage points higher than what is required by Basel III.

MAS will require Singapore-incorporated banks to meet a minimum Common Equity Tier-1 (CET1) capital adequacy ratio (CAR) of 6.5%.

Meanwhile, Tier-1 capital adequacy requirement will be increased from 6% to 8%.

The total capital adequacy requirement (Total CAR) will remain unchanged at 10% from 1 January 2015.

These standards are higher than the Basel III minimum requirements of 4.5%, 6% and 8% for CET1 CAR, Tier-1 CAR and Total CAR, respectively.

Singapore banks are believed to have already met Basel III standards. As such, MAS is targeting that banks officially meet Basel III requirements by 2013, two years ahead of the international standard.

And MAS wants the banks to meet its higher minimum requirements by 2015.

In line with Basel III requirements, MAS will introduce a capital conservation buffer of 2.5% above the minimum capital adequacy requirement. MAS says this will be met fully with CET1 capital and phased in on 1 January each year, from 2016 to 2019.

Mr Lim said: "The impact on banks' capital structures will be manageable. This is, in part, due to the already high internal capital buffers held by the banks and also due to the transition arrangements that will apply."

So far Singapore seems to be ahead of the pack in terms of capital requirements compared to the Basel III global standards. Switzerland, the UK and China have introduced rules, at levels similar to Basel III.

- CNA/ir

- wong chee tat :)