LOANS EXTENDED BY LOCAL AND FOREIGN FINANCIAL INSTITUTIONS TO REGIONAL ECONOMIES (UPDATE)

Mr Chuang Shaw Peng asked the Deputy Prime Minister if he will give the latest update on loans extended by local and foreign financial institutions to regional economies, especially Indonesia where a de facto moratorium on debt payment has been announced.

BG Lee Hsien Loong: Mr Speaker, Sir, as at 31st December 1997, the six local banking groups had loans and investments amounting to $37.2 billion, which is 16% of their total assets, in Malaysia, Indonesia, Thailand, Korea and the Philippines. This is $3.8 billion or 9.2% lower than it was a month earlier.

Two-thirds of this exposure was in Malaysia, where Singapore banks have long established operations. Their exposure to Indonesia was $5.4 billion or 2.3% of their total assets.

The total classified loans of the six local banking groups to these five countries amounted to 5.7% which is $2 billion of their loans to these countries. This figure is based on an assessment by the banks' auditors in mid-January, taking account of developments up to that date. It is higher than the preliminary estimate of 3.2% which was $1.2 billion for November 1997, which I provided in my previous parliamentary answer, and it follows the comprehensive and updated review of the banks' portfolios by the auditors.

The total classified loans for the local banks, including both local and overseas loans, were 2.6% of their total loan portfolios. My previous figure was 2%. As a percentage of their total global assets, this was 2.3%. Perviously, it was 1.7%. These figures remain well within comfortable limits.

The local banks, in consultation with the MAS, have decided to set aside substantial provisions to cater to the potential risks arising from their exposure to the regional economies. They have each made full specific provisions for their classified loans, with the actual provisions depending on whether the loans are classified as sub-standard, doubtful or bad. They provide 10% for unsecured sub-standard loans, 50% for doubtful loans and 100% for bad loans. In addition, the banks have also made general provisions on the performing loans in their regional portfolios, over and above their normal general provisions. These exceptional general provisions are of a precautionary nature, and may not eventually be used. They will provide a buffer against a possible further deterioration in the quality of their regional loans.

In total, the six banking groups will set aside $1.6 billion from their 1997 earnings in regional, specific and general provisions. If we include provisions for regional loans that they had set aside in earlier years, they will have set aside $2 billion. Most of this, which is $1.8 billion, consists of provisions on loans to non-bank customers in the region, or about 8% of such loans. The provisions vary from country to country, depending on the risks assessed by the banks in each case.

As a result of these exceptional provisions for regional risk, the six local banking groups will report significantly lower earnings in 1997 compared to 1996. In aggregate, their earnings will decline by about 30%, although some banks will decline by more than others, depending on their regional exposure.

However, all six banks are financially sound. They have strong capital positions, exceeding 12% of their risk-weighted assets, higher than most banks in other countries. They also sit on substantial reserves. These comprise the general provisions they have accumulated in previous years as well as substantial assets valued at cost, which remain well below current market values.

The MAS is satisfied with the provisions that the local banks are setting aside in 1997 as part of prudent banking practice. By recognising the potential problems early, the banks will be well prepared to cope with any further eventualities in the region.

The Member has also asked about foreign financial institutions. Foreign banks book their loans to the region in various branches, not only in Singapore. Their global exposure to the regional countries, as disclosed by their head offices, is more relevant than the exposure of their Singapore operations alone. Some foreign banks disclose their regional exposures in their annual reports.

Dr Lee Tsao Yuan (Nominated Member): Sir, the Deputy Prime Minister has given the assurance that all local banks are financially sound and they have all made generous provisions for these loans. The figures that he has given are actually for the six local banks in total. I was wondering whether it is possible for the Deputy Prime Minister to actually reveal, not so much in terms of absolute amounts but a relative amount by individual banks in order not to disclose the identity of the banks, if that is actually a concern, in order to allay any suspicion that these banks are indeed, in terms of their total exposure, financially sound.

BG Lee Hsien Loong: Mr Speaker, Sir, all the banks are financially sound, from the largest to the smallest. They will all face a difficult year but none of them are in danger. The banks know that I am making this statement today and that this information is coming out. And they also know that when they publish their annual reports, they will have to give further elaboration on their individual exposures.

They are expecting to publish their annual reports and their annual results probably early in March.