Singaporean banks to benefit from Enhanced Deposit Insurance

The revised deposit insurance scheme would insure in full 91% of the expanded insured depositor base.

According to Moody's this is up from 83% of the existing smaller base. More deposit insurance protection would make for smaller deposit outflows during times of shock, which in turn would lead to greater stability in the financial markets.

An additional benefit for Singaporean banks is that it would ease their compliance with the minimum standards for funding liquidity under Basel III.

In Moody's view, the three Singaporean banks, DBS Bank, Oversea-Chinese Banking Corp., and Uniter Overseas Bank Co., would still be able to meet the Basel II liquidity requirements with few problems even without a change in the deposit insurance scheme. But because insured deposits are considered more stable source of funds, a lower run-off rate would apply under Basel III. Hence, the larger the amount of insured deposits, the better able banks will be to excees the minimum liquidity requirements.

Singaporean banks' funding held firm during the recent global financial crisis, with stable loan-to-deposit rations of less than 85% and negative market fund ratios.

Moreover, the financial market has been stable following the termination at the end of 2010 of a blanket deposit guarantee. Still, enactment of the bill would provide a stronger safety net for the banking system.