Surprise: Singapore banks almost unscathed from Indonesia's tax amnesty

First phase repatriation only accounts for 1-2% of banks' assets.

Some market players had earlier expected Singapore banks to record high AUM outflows from their wealth management businesses, consequent to Indonesia’s tax amnesty scheme. Thus far, the amount repatriated to Indonesia from Singapore is only 12% of the declared amount kept in the island state and is a small 1-2% of the wealth management AUM of the local banks, said RHB.

When the first phase of the 9-month Indonesian tax amnesty scheme ended last month, Indonesian taxpayers had declared >IDR3,600trn in assets (SGD377bn), both domestically and overseas.

Of that figure, IDR952trn were overseas assets, of which 70% was kept in Singapore. The amount repatriated from the island republic back to Indonesia stood at IDR79trn (SGD8.3bn), or 12%
of the declared amount kept in Singapore.

According to RHB, first phase repatriation from Singapore to Indonesia is only a small 1-2% of local banks’ asset under management (AUM).

Data from the three Singapore banks under RHB's coverage showed that wealth management AUM amounted to ~SGD321bn, comprising DBS’ SGD151bn, Oversea-Chinese Banking Corp’s
(OCBC) SGD82bn and United Overseas Bank’s (UOB) SGD88bn. Hence, RHB estimates that the amount repatriated to Indonesia from Singapore accounts for only 2.6% of the three banks’ total AUM.

"If we factor in the AUM of other private banks in Singapore, the percentage of such assets repatriated to Indonesia is likely to be a small 1-2% only," it noted.

According to RHB, more repatriation in subsequent phases is expected, but the repatriation amount seems to be a small percentage of AUM.

RHB said that the tax rate for those who repatriate their assets now (Phase 2) is 1ppt higher than the first phase at 3%. Meanwhile, those declared but not repatriated will see a 6% tax rate (vs 4% in
Phase 1). The tax rate is to rise further in Phase 3.

"We believe there is likely to be more repatriation of funds from Singapore to Indonesia going forward, but the experience of Phase 1 suggests that the amount repatriated is unlikely to be a
large percentage of Singapore banks’ AUM," said RHB.

The research firm sees minimal adverse impact of the Indonesian tax amnesty scheme on Singapore banks’ earnings. However, it warns that the slowing economic environment is likely to exert upside pressure on NPLs.