POST OFFICE SAVINGS BANK (Sale to DBS Bank)

Mr Chng Hee Kok asked the Minister for Finance whether the Government disclosed fully the reasons (including the Y2K issue) for the sale of Post Office Savings Bank to DBS Bank in 1998.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, the sale of POSBank to DBS Bank was made known to the public at a press conference which I presided on 24th July 1998 and at the Parliamentary sitting on 12th October 1998. I explained the two reasons for the sale. Firstly, the rapid growth in world trade and globalisation of the world economy has led to vast changes in the banking industry. Corporate and individual customers now demand a wide range of sophisticated services. Increasingly, banks are evolving into financial supermarkets, and are no longer just deposit takers and lenders. These developments, together with the opening up of financial markets worldwide, have led to a spate of mega-mergers, as banks merge and consolidate their strengths in order to remain competitive. Size has become very important in the banking sector. It provides the leverage for the effective cross-selling of financial products and harnessing of costly technological changes. It also gives the banks the ability to reach deep into a range of markets that are increasingly being deregulated, and to take advantage of opportunities available in these markets. Bigger banks are better placed to cater to the discerning modern banking customers. This acquisition would therefore place DBS in a better position to face the competitive challenges that lie ahead.

Secondly, the acquisition would enable POSBank to better serve its increasingly sophisticated customers and depositors. To meet competition from commercial banks and to retain its customer base, POSBank had to speed up the rate at which it was growing its range of products and services. However, organic growth on its own would be a slow process and the best way POSBank could grow quickly was to actively seek out complementarities with other banks.

Y2K was not a reason why the Government sold POSBank. In fact, POSBank had commenced its system review on Y2K compliance prior to the sale and had plans to be Y2K ready. The Government is confident that POSBank would have been Y2K ready by 2000.

Mr Chng Hee Kok (East Coast): Sir, the Minister says that the divestment was to better serve POSBank's customers but it does not appear to be the way things have turned out. The question really is that at that time of the divestment, did the Government envisage that there will be severe cut-back of the services of POSBank by DBS? And secondly, why was DBS allowed to close bank branches when the existing DBS computer system could not handle POSBank's accounts? In other words, it appears to be very poor planning that was very badly implemented.

Dr Richard Hu Tsu Tau: The Government is in no position to tell DBSBank what it should do with the purchase. When I said that the sale will make it better for the combined bank to service its customers, I mean to serve its more sophisticated customers. The bulk of POSBank's customers were small customers, together with a group of large depositors. This structure, it was foreseen, could not last much longer because it was losing money of its large depositors to other commercial banks.

As to the quality of the service which POSBank has been able to render post merger, I believe DBS Bank has already made public statements on its services. The Member should ask DBS directly if more information is needed or put in another question on this particular issue.

Mr Chng Hee Kok: Sir, Government is appropriately represented at DBS Bank, especially at the board level, is it not?

Dr Richard Hu Tsu Tau: It is a commercial bank. I think it would be wrong for Government to impose conditions on how it should operate.

Assoc. Prof. Toh See Kiat (Aljunied): Sir, the Minister has said that the sale of POSBank was to serve the increasingly sophisticated needs of the consumers. But does he not know that there are a lot of unsophisticated consumers who have simple needs and therefore would actually need a very simple no-frills bank, and this may perhaps lead to the Government re-thinking this issue as the New Zealand government had done?

Dr Richard Hu Tsu Tau: I do not want to reopen the issue of what POSBank is doing in serving its customers. It has come out publicly to explain why and, as I have said, if you think this is an issue which needs to be reopened, please submit a separate question.