Published February 4, 2009

Golden chance for local banks to up market share

By SIOW LI SEN

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LAST week, former British prime minister Tony Blair told a Davos audience to applaud HSBC chairman Stephen Green for daring to come out in daylight. Mr Green is understood to be one of a handful of bankers to turn up at Davos - at a time when the protectionist drumbeat is getting increasingly strident in Europe and the United States. It is interesting to note that some observers are wondering if foreign bankers, given the pressure they are facing from the global financial turmoil, are going to be as scarce in Singapore too.

Last Friday, also in Davos for the World Economic Forum, British Prime Minister Gordon Brown sounded the alarm for London where foreign banks have been beating a hasty retreat.

Citing an estimated US$800 billion collapse in cross-border lending and investment to emerging markets since 2007, Mr Brown said the world should be wary of 'financial mercantilism' where battered foreign banks repatriate money and retreat from global finance. But Mr Brown has been accused of playing to the international audience. According to the Financial Times, on the same day the Bank of England showed that British financial institutions themselves responded to government pressures to maintain lending to UK companies and households by reducing foreign currency lending to non-residents by a greater amount in the fourth quarter than at any time since records began in 1990.

David Dooks, statistics director at the British Bankers' Association, said UK banks felt pressure to give priority to British borrowers over those from abroad.

'Every speech by the government is designed to support UK plc,' Mr Dooks said. 'A natural consequence of the situation we are in . . . is that UK banks will concentrate on the UK primarily.'

Will foreign banks retreat from Singapore amid the global financial woes? Last month, Minister for Trade and Industry Lim Hng Kiang said in Parliament that there have also been knock-on effects here from the global financial turmoil. He said bond and equity market issuances have thinned substantially, and that the foreign banks operating in Singapore, which collectively make up more than 40 per cent of our domestic credit market, were affected by the crisis in the US and Europe.

If nationalised UK and European banks and battered US banks retreat from Singapore, it would be no surprise. If this happens, a pleasant surprise to look forward to is our three local banks seizing the challenge and stepping into the vacuum.

Asked one cynic: 'When have bankers, local or otherwise, been heroes?' The local banks did not take up the slack in the aftermath of the 1997-98 Asian financial crisis for several reasons, including the need to nurse their high non-performing loans of 8 per cent and subsequently having to consolidate their operations in response to the sector being liberalised.

For sure, nobody knows how protracted the global recession is going to be and banks are thinking more in terms of survival.

But for the three well-capitalised local banks, it would be a golden opportunity to increase market share, and live up to their mission statements - that this being their backyard, they know Asian clients best. This means they should be able to discern clients worthy of support, instead of testing their viability by asking for loans repayment, which often is the trigger causing companies to go under.

A decade ago, foreign banks accounted for one third of deposits, 45 per cent of loans and 70 per cent trade finance. It will be interesting to see how much this picture shifts, given that the current crisis is said by many to be so serious that it may result in a new economic order.