Singapore banks are ready for new liquidity requirements: Fitch

Challenge not accepted, because there really is no challenge.

The new liquidity coverage ratio (LCR) requirements were announced by MAS on June 24, and will require locally incorporated banks to maintain a full local-currency LCR from January 2015. Foreign banks will also fall under the new framework, with LCR requirements of 100% and 50% for Singapore dollar and foreign-currency liabilities, beginning January 2016. The banks’ response? No problemo.

A recent report by Fitch Ratings indicates that the new requirements are not expected to pose major challenges for the local Singapore banks, due to their sound funding and liquidity positions. Singapore dollar loan/deposit ratios are between 75% and 85% for the 3 large local banks, suggesting that they are well-equipped to comply with the LCR requirements.

Meanwhile, deposit competition is expected to heat up in Singapore as foreign banks compete more aggressively to attract local-currency deposits while local lenders continue to prioritise funding stability as balance sheets grow across the markets where they operate.

Here’s more:

The changes are in line with Basel III objectives, and reinforce the MAS's conservative regulatory track record - a factor we have cited as contributing to the stable outlook on the banking sector. Nonetheless, Singaporean banks have become increasingly regionalised, and are expected to continue expanding their overseas businesses. As such, the action by the MAS to ensure higher levels of liquidity coverage, especially for non-Singapore dollar-denominated liabilities, will help to curb potential sector imbalances.

The MAS also announced plans to reinforce its regulatory framework for foreign banks operating in Singapore. New proposed rules will require the retail operations of foreign banks with at least a 3% market share of non-bank deposits and at least 150,000 depositors with account balances of up to SGD250,000, to be designated as domestic systemically important banks (D-SIBs). This will likely capture a large majority of the domestic Singapore banking system. D-SIBS will be required to incorporate locally and maintain an additional 2pp of common equity Tier 1 capital above international minimums (in addition to the new LCR requirements), which is the same as that required for the three local banks.