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Singapore, Asian banks have overcome crises, digital push to help: MAS chief

SINGAPORE (Nikkei Markets) -- Singapore's three local lenders have dealt decisively with problem loans to energy-related sectors, and their outlook, along with that of their Asian counterparts, is positive, according to the head of the Monetary Authority of Singapore.

Asian banks would benefit from the region's higher growth rates, while the high rate of mobile phone penetration would help them reach the millions who do not even have bank accounts, managing director Ravi Menon said in a speech posted on the MAS website.

Global banks will continue to play an important role in the region, especially in wholesale banking and the intermediation of U.S. dollar flows. "But the onus largely falls on Asian banks to expand financial inclusion, especially at the retail and small business level," Menon told a financial symposium on Monday.

Menon said Asia is expected to continue registering growth rates of about 6% on average over the next five years, which is higher than the forecast global average of 3.7%, driving demand for financial services.

He noted that Asian banks have emerged from the global financial crisis with stronger fundamentals relative to their global peers, enabling them to gain market share as global banks retreated from the region.

"In 2007, Asian banks accounted for just a third of all international claims to the region. Today, they account for more than 60% of non-local lending to the region," he said, citing data from the Bank for International Settlements.

Referring to Singapore's banks, which have been hard hit by the tumble in crude prices, Menon said that the rise in non-performing loans has been manageable and that provisions were made "proactively and conservatively."

For the banking system as a whole, the aggregate exposure to the oil and gas sector was around 10% of loans, with the overall provisions for unsecured NPLs in excess of 100%.

"The local banks' provisioning cover is even higher, at above 200%," he added, referring to domestic players DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank, which saw their earnings fall last year as defaults by oil-and-gas companies grew.

Menon said the increase in NPLs must be viewed in perspective as banks are in the business of intermediating risk by lending to parties that may face difficulties from time to time.

"If NPLs did not rise at all during difficult times, then the banks are probably not lending enough or taking on sufficient risk to promote business expansion or enterprise," he said.

Earlier this month, credit rating agencies Fitch and Standard & Poor's affirmed their AA-minus investment grade ratings on DBS, OCBC and UOB, allaying concerns about their asset quality.

Fitch, for instance, cited the three lenders' strong funding profiles, entrenched domestic franchises, large loss-absorption buffers, steady profitability and stringent regulatory oversight as factors supporting its AA-minus rating.

Looking ahead, Menon said Asia provided fertile ground for digital innovation in banking, especially in countries like Indonesia and Vietnam, where mobile phone penetration rates exceed 100% while only around a third of the population relied on the traditional banking system.

"Coupled with a young and tech-savvy population, what we have is a ripe environment for mobile banking," he said.

Menon highlighted two developments that could extend banking services to people and sectors that had been underserved historically.

The first was a "branchless" program in Indonesia run by the country's Financial Services Authority, which offers banking and financial services to those lacking access to traditional outlets with the help of mobile phones and IT facilities.

Another was DBS's collaboration with peer-to-peer lending platforms to provide funding to small businesses that might have difficulty borrowing from banks due to their lack of a credit history.

Under this arrangement, DBS will refer some of these smaller businesses to p2p lenders. In return, these lenders will refer borrowers who have completed two successful rounds of fund raising to DBS for larger commercial loans and other financial solutions such as cash management.

"Broadening access to financial services will offer Asian banks - and FinTechs - the opportunity to grow their business while serving a social purpose," he said.

--Kevin Lim

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

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