SINGAPORE - Singapore's three local banks face a minimal impact on their earnings from the move by the Monetary Authority of Singapore (MAS) to require them to set aside extra reserves with the regulator for a one-year period, analysts say.
But adhering to other strict new guidelines aimed at ensuring that banks stamp out attempts to fix key financial benchmarks could be a drain on management, according to the banking analysts.
Last Friday, MAS did not spare the rod when it proposed tough new laws to criminalise and penalise banks which attempt to manipulate financial benchmarks such as Sibor, a rate used to set home loans, for example.
The regulator has ordered 19 of 20 banks found to have fallen short of expected standards to park extra funds ranging from $100 million to $1.2 billion with MAS while the banks step up their house cleaning. The exception was Commerzbank.
The funds, which will generate no interest for the banks, need to be deposited within a month. The banks also need to report their progress to MAS every quarter and conduct independent reviews to ensure the efficacy of the remedial measures.
"We do not expect the impact on Singapore banks to be material given that they have non-restricted balances, which are in excess of mandated statutory reserves required by central banks," said UOB KayHian analyst Jonathan Koh. These non-restricted monies could be used to fulfil the additional statutory reserves required by MAS.
Of the three local banks which are also among South-east Asia's largest lenders, OCBC Bank needs to set aside a higher amount of between $700 million and $800 million with the MAS.
DBS Group Holdings and United Overseas Bank (UOB) each need to park between $400 million and $600 million.