No plans for local banks consolidation: MAS
By Janice Teo | Posted: 28 June 2010 2022 hrs

	Photos 1 of 1

SINGAPORE: The Monetary Authority of Singapore (MAS) said it's up to the banks to evaluate the merits of any merger in Singapore.

Meanwhile analysts said there's no indication that the local banks are heading in that direction unless there is a policy shift first.

This follows comments by Minister Mentor Lee Kuan Yew who said that Singapore was "too small" for three banks at an industry event last Friday.

At a recent dialogue session, Minister Mentor Lee Kuan Yew said Singapore's local banks may need to consolidate if they want to compete successfully overseas.

Some analysts agree and they 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.

Moh Tze Yang, lead analyst, SIAS Research, said: "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. OCBC will service the local market.

“In terms of going overseas, it would make sense to combine the two biggest ones. But as the current situation stands and if a consolidation occurs, we still maintain that OCBC 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, there could be possible benefits to consumers in the long run.

Anand Srinivasan, associate professor, Department of Finance, NUS Business School, said: "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 lower interest rates on notes, that might be a long term benefit.

“But then 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 especially because of the lower degree of competition."

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

In a statement, MAS said it does not and cannot dictate the precise number or configuration of local banks

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.

It added that even as the local banks seek to expand abroad, there must be a competitive domestic banking sector which provides a full suite of financial services to consumers.

The three local banks declined to comment. - CNA/vm/ls