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NEWS UPDATES Asean Affairs    30 July 2012

Singapore issues new banking licenses to Chinese banks


A recent issuance of banking licences in Singapore may have some implications on the Malaysian banking system, according to industry sources.

Recently, the Monetary Authority of Singapore (MAS) said it would be granting two full-fledged licences in the city state to two Chinese banks which MAS had not named just yet.

The full banking licences, called Qualifying Full Bank (QFB) licences in Singapore, will be issued to two Chinese banks already operating in Singapore. Chinese banks operating in Singapore include Bank of China, China Construction Bank and Industrial and Commercial Bank of China, hence all likely contenders.

However, what is noteworthy is that this has taken place amidst a long-standing application for a full-fledged banking licence in Singapore by Malaysia's CIMB Group Holdings Bhd.

About a week ago, CIMB had indeed reiterated its interest to clinch a QFB licence in Singapore.

It is yet unclear why CIMB has not yet been issued with such a licence across the causeway.

CIMB declined to comment when contacted.

The only Malaysian bank with this type of privileged licence in Singapore today is Malayan Banking Bhd.

However, some banking analysts said that the recent QFB licence issuance to Chinese banks was only to be expected, considering the strong financial ties both countries had.

The MAS decision to give QFB licences to two Chinese banks is reportedly to enhance banking services cooperation under the China-Singapore Free Trade Agreement.

One of the two which will be awarded the QFB will be allowed to be a clearing bank for yuan transactions.

In return, the Singapore's Ministry of Trade and Industry reportedly said that China would expeditiously process all applications made by selected Singapore banks for the establishment of branches and sub-branches in China.

But will the recent decision of MAS have any impact on the Malaysian banking scene? This is something that banking players are pondering.

Reports have indicated that Singapore's DBS Bank Ltd is seeking to penetrate the Malaysian market after Bank Negara had in April given the go-ahead for DBS to begin negotiations with Duxton Investments Pte Ltd, a unit of Temasek, for an effective 14.2 per cent equity in Alliance Financial Group Bhd (AFG).

(Duxton Investments and Malaysian company Langkah Bahagia Sdn Bhd, believed to be linked to former finance minister Tun Daim Zainuddin, jointly own Vertical Theme Sdn Bhd. Vertical Theme in turn has a controlling 29.1 per sent stake in AFG.)

It is left to be seen if DBS will get approval to buy out Langkah Bahagia, thereby gaining control over AFG. Furthermore, under the Banking and Financial Institutions Act, institutions have to obtain special approval from Bank Negara to own more than a 20 per cent stake in a domestic financial institution.

Yet another complication is that DBS also has a 28 per cent shareholding in local investment bank Hwang-DBS (M) Bhd. Having ownership in two financial institutions run foul of local banking regulations.

Some quarters have speculated that DBS could seek to merge Hwang-DBS with AFG.
However, it is left to be seen if DBS will get the necessary approvals to do all this, especially in light of Singapore's recent decision to award the QFB licences to two Chinese banks while a Malaysian bank has been waiting for the same.

Also to be remembered is the fact that Singapore banks already dominate the foreign banking landscape in Malaysia.

The foreign bank with the largest branch network in the country is Singapore's UOB (M) Bhd which operates 45 branches throughout Malaysia, according to its corporate profile.

Singapore's OCBC Bank (M) Bhd corporate profile also states that it is one of the top five foreign banks in Malaysia with a network of 31 branches.

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