Bloomberg News

Singapore Sets Bank Capital Ratios Above Basel III Levels

June 29, 2011

(Updates with comments from OCBC CEO in ninth paragraph.)

June 29 (Bloomberg) -- Singapore said it will set capital levels for local lenders above the global minimum to solidify the city’s position as a financial hub after regulators tightened norms for the world’s largest banks.

Lenders incorporated in Singapore will need to meet a minimum common equity Tier 1 capital adequacy ratio of 6.5 percent from Jan. 1, 2015, the Monetary Authority of Singapore said in a statement yesterday. That’s 2 percentage points more than the so-called Basel III rules announced last year.

Policymakers in the Southeast Asian nation aim to join U.S. and European regulators in shoring up capital at banks that are deemed too big to fail. The Basel Committee on Banking Supervision this weekend said that systemically important banks must hold as much as 2.5 percentage points in additional capital as part of efforts to prevent another financial crisis.

“The MAS guidelines clearly set out what’s expected of locally incorporated banks and ensures the strength and stability of the banking sector,” Anil Wadhwani, who heads the local unit of New York-based Citigroup Inc., said in an e-mailed statement. “Citibank Singapore is more than adequately capitalized to meet and exceed the new requirements.”

The Basel III capital rules announced last year, which apply to a broader group of banks worldwide, are scheduled to be phased in from 2013 through 2019. National regulators should treat the rules as a minimum standard that they can surpass if they wish, according to the Bank for International Settlements, the parent organization of the Basel committee.

‘Level Playing Field’

DBS Group Holdings Ltd., Southeast Asia’s biggest bank, is “very well positioned” to meet the latest requirements compared with global rivals, Chief Executive Officer Piyush Gupta said in a statement yesterday.

The more stringent standard “underlines Singapore’s status as a very solid and prudently managed financial center,” Gupta said. “Nevertheless, we hope the global regulators will continue to monitor transition arrangements across countries to ensure a level playing field and avoid regulatory arbitrage.”

Singapore’s three banks are ranked in the top six among the world’s strongest banks, based on criteria such as Tier 1 capital ratio, non-performing assets and a comparison of costs against revenue, Bloomberg Markets magazine reported in its June issue. Oversea-Chinese Banking Corp. topped the global list, with DBS at No. 5 and United Overseas Bank Ltd. at sixth.

Rights Issue Fear

“The good news here is that Singapore banks can all meet Basel III requirements now, including the extra 2 percent imposed by the MAS,” David Conner, chief executive officer of Oversea-Chinese Banking, said today at the annual general meeting of the Singapore International Chamber of Commerce. “No one needs to fear a sudden rights issue” by Oversea-Chinese as a result, he said.

Oversea-Chinese Banking said its common equity Tier 1 ratio under Basel III is about 10.8 percent as of March 31.

“The phased approach will help ensure a smooth transition,” said Wee Ee Cheong, deputy chairman and CEO of United Overseas Bank. “The revisions are in line with ongoing efforts to strengthen the industry’s resilience and to position Singapore as a global financial center.”

The world’s largest banks will have to meet the Basel surcharges using core Tier 1 capital, also known as common equity, regulators said in a June 25 statement. The extra measures for as many as 30 of the largest banks will be imposed in addition to the Basel rules announced last year that require lenders to hold core capital equivalent to at least 7 percent of their risk-weighted assets.

Singapore plans to raise the Tier 1 capital adequacy ratio to 8 percent from 6 percent and introduce a capital conservation buffer of 2.5 percentage points.

“Each of the Singapore-incorporated banks is systemically important in Singapore and has a substantial retail presence,” the city-state’s central bank said in the statement. “The higher capital requirements will further strengthen their ability to operate under stress conditions.”

--Editors: Lars Klemming, Chitra Somayaji

To contact the reporters on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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