Singapore to allow foreign acquisitions of finance companies

The Singapore exchange is relying increasingly on its derivatives revenue, which soared 42 percent in the year to end-June and accounted for 38 percent of total revenue

SINGAPORE: Singapore’s central bank said it will allow foreign takeovers of the country’s three finance companies, as part of wider industry changes that seek to boost lending to small and medium enterprises (SMEs).

The Monetary Authority of Singapore (MAS) is prepared to consider applications for mergers or acquisitions if any prospective partner “commits to maintaining SME financing as a core business” of the finance company being targeted, it said in a statement.

“This will accord finance companies greater flexibility to explore strategic partnerships and innovative business models that can strengthen their SME financing business,” MAS said. It also unveiled plans to relax lending limits for the firms.

Shares of the finance companies – Hong Leong Finance Ltd, Sing Investments & Finance Ltd and Singapura Finance Ltd – surged after the announcements.

The MAS issued a statement on Monday outlining a series of plans to support and implement recommendations made by an economic panel last week. The Committee on the Future Economy presented strategies aiming to support growth at an average rate of 2% to 3% annually in coming years.

Finance companies in Singapore are licensed to take deposits and grant loans to individuals and businesses, with a focus on the SME sector. Hong Leong, Sing Investments and Singapura Finance currently hold around S$7bil (US$4.9bil) of outstanding loans to SMEs, or just under 9% of the total.

Loans and advances by the finance companies dropped to S$12.5bil in December, the lowest since March 2015, according to preliminary MAS figures. That represents just 2% of the S$617.3bil of loans and advances in the city’s financial system, the data show.

Shares of Hong Leong, the largest of the three firms, climbed 9.7%, the most since March 2009, as of 4:01pm in Singapore yesterday. Sing Investments rose 9%, while Singapura Finance surged 19%.

Hong Leong has a market capitalisation of S$1.1bil, while the others are valued at under S$250mil. Potential investors might be lured by their low valuations: The three firms’ shares are trading at a discount of more than 30% below the book value of their assets, compared with the Straits Times Index’s 19% premium, data compiled by Bloomberg show.

Opening up the personal-finance sector to foreign takeovers could spell more competition for Singapore’s three big banks, said Jeremy Teong, an analyst at Philip Securities Pte Ltd. “The banks are already competing strongly for high-quality loans.”

Profit at DBS Group Holdings Ltd and its two bank rivals, which account for most credit to SMEs, have come under strain from a weakening domestic economy and increased charges for loan losses tied to the oil and gas industry.

Asian currencies have also faced pressure as investors raised bets for US interest-rate increases this year, adding to debt costs.

After the announced changes, which will be implemented in several stages starting this year, the limit on the finance companies’ aggregate uncollateralised business loans would be raised to as much as 25% of its capital funds, from the current 10%, MAS said. The cap on such loans to a single borrower will be raised to as much as 0.5% of capital funds, from the current S$5,000. — Bloomberg