No plans for consolidation

MAS : Up to banks to evaluate merits

Jonathan Peeris

jonathanpeeris@mediacorp.com.sg

SINGAPORE

Meanwhile, analysts told MediaCorp that there is no indication that the local banks are heading in that direction unless there is a policy shift first.

Market watchers were responding to comments by Minister Mentor Lee Kuan Yew, who said last Friday that Singapore was “too small” for three banks.

At a dialogue session organised by the Association of Banks in Singapore last Friday, the Minister Mentor said Singapore’s local banks may need to consolidate if they want compete successfully overseas.

Some analysts agreed and said the three banks, DBS, OCBC and UOB, will need to double their current market capitalisation, in order to compete effectively with foreign players like Standard Chartered or Citibank.

Mr Moh Tze Yang, lead analyst at Sias Research, said that “if you look at it in terms of Singapore’s entire banking system, by combining our two strongest banks, this bank will be able to compete internationally.

As the current situation stands, we still maintain that OCBC, if a consolidation would occur, would be the primary target to be absorbed in”.

But while the combined bank would emerge stronger, local SMEs who enjoy better interest rates from local banks would be dealt a blow with fewer players left in the market.

However, NUS Associate Professor Ananda Srinivasan said there could be possible benefits to consumers instead in the long run.

“In the longer run, any consolidation might result in a lower cost of capital to the bank, and this lower costs are then in turn passed on to the consumers, in terms of let’s say lower interest rates on notes, that might be a long term benefit,” said Prof Ananda.

Yet Prof Ananda added that “one would have to ask the question as to why the banks would pass on the benefits.

They don’t necessarily have an incentive to do that right?”.

Analysts added that any consolidation would be driven by policy shifts rather than market forces.

In a statement, MAS said while it has encouraged the local banks to consolidate in the past to benefit from economies of scale, it does not and cannot dictate the precise number or configuration of local banks.

The three local banks declined to comment.— The Monetary Authority of Singapore says it has no plans for bank consolidation in Singapore and it’s up to the banks to evaluate the merits of any merger.

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