Singapore banks brace for heightened competition

CIMB presumes Bank of China will be granted Qualifying Full Bank privileges as a clearing bank for RMB in Singapore.

According to CIMB, Singapore and China will enhance banking services cooperation under its China-Singapore FTA. Under the enhanced agreement, two eligible Chinese banks will be granted QFB (Qualifying Full Bank) privileges. One of the two will be a clearing bank for RMB in Singapore.

Here’s more from CIMB:

China will expedite applications by Singapore banks to open branches in China, in return. We do not view new competition in the local market as a major negative for the local banks, especially if they have scope to grow in China.

What Happened
The MTI announced that two eligible Chinese banks will be granted QFB status. One will act as a clearing bank for RMB in Singapore, presumably BOC. This follows MAS statements that its QFB program will be modified to encourage foreign banks to deepen their roots in Singapore, potentially giving some QFBs an additional 25 new places of business.

What We Think
Although the developments trigger concern of increased competition in Singapore, we think the benefits of foreign expansion avenues outweigh competition negatives locally. Since 1999, MAS had progressively opened up the banking sector believing that international presence will add to the strengths of Singapore’s financial hub status and the competitiveness of its local banks.

Despite 8 QFBs in the market, local banks have held on to 60% deposit share and 52-53% loan share. New competition should not be too hurtful, particularly if it gives the local banks new markets to grow, e.g. the quid-pro-quo move to link FTAs to QFBs last saw ICICI and SBI receive new QFBs. They did not pose much threat as new local competitors whereas DBS had seen its India revenues grow rapidly.