- MAS released consultative paper on D-SIB. Monetary Authority of Singapore (MAS) has released a consultative paper that proposes a framework to identify domestic systemically important banks (D-SIBs) in Singapore and address the risks they pose.

- Size is one of the criteria cited. MAS believes that a bank which is significant in either size, interconnectedness or substitutability could have a large impact on Singapore’s financial system and broader domestic economy. In the case where a bank is assessed to have a significant retail presence, such a bank will be designated as a D-SIB, and will be required to locally incorporate its retail operations.

- Local incorporation requirement is likely for Maybank... MAS regards a bank as having a significant retail presence if it satisfies the following two criteria:- (a) share of resident non-bank deposits at ≥3%; and (b) number of depositors with accounts less than or equal to S$250,000 ≥ 150,000. We understand that Maybank’s market share of local deposit in Singapore is 6.1% as at 31 March 2014. It also has more than 150,000 depositors with deposit accounts less than or equal to SGD250,000.

- … but is in line with expectations. Thus, Maybank seems to fall under the significant retail presence criteria, and would likely be required to locally-incorporate its domestic operations. This is in line with expectations though, given that this possibility was highlighted in the press earlier.

- Slightly higher LCR requirement. MAS will also require D-SIB foreign bank groups or branches to meet a SGD LCR requirement of 100% effective on 1 January 2016. Note that, simplistically, the formula for LCR is high quality liquid assets over net cash outflows over a 30-day period. Net cash outflows include assumptions on deposit run-offs. The new requirements may lead to further pressure on net interest margin (NIM), given that banks may be required to hold liquid assets with a lower yield (cash, government securities) compared to for example loans, for LCR purposes.

- Maintain NEUTRAL. On an overall basis, we are neutral on the latest news, which has a slight negative bias on NIM. We expect the banks’ share prices to remain flat, with ongoing concerns not only on capital, but also on earnings due to a NIM squeeze, and possible increase in impaired loans following a possible rate hike in July. We remain NEUTRAL on the sector. 

Source: AmeSecurities