askST: How safe are deposits with foreign banks in Singapore?

Reader Stanley Ong wrote in to askST about the safety of banks in Singapore.

He wrote: "We believe that local banks (DBS, OCBC and UOB) are safe. But are deposits kept with foreign banks safe, given that the Singapore Deposit Insurance Corporation (SIDC) only insures each depositor up to $50,000 only?"

Senior correspondent Goh Eng Yeow answered.

In Singapore, the role of the banking regulator - the Monetary Authority of Singapore - is to apply the same rigorous standards of licensing, regulations and supervision to both the local and foreign banks operating here.

To reduce the risks of a bank failure, the MAS requires financial institutions to have in place sound risk management systems and internal controls.

A MAS spokesman said: "The introduction of a deposit insurance (DI) scheme is another way or reducing the impact of a failure to a depositor. In Singapore, deposits are insured up to a maximum of $50,000 in the event of a bank failure."

As such, if you want a fool-proof way of protecting your deposits - assuming that you have a big sum to stash away - you may want to consider breaking them into smaller sums of $50,000 or less and depositing them separately into banks with full licences here.

For a list of the full-licensed banks, you may want to refer to this link on the MAS website.

As an added protection, the MAS has a framework for identifying and supervising what it labels as "domestic systematically important banks (D-SIBs)".

The list of such banks includes the three local banks - DBS, OCBC Bank and United Overseas Bank - as well as four foreign lenders - CitiBank, Standard Chartered, MayBank and HSBC.

D-SIBs are banks which are considered to have a significant impact on Singapore's financial system and proper functioning of the broader economy, and MAS may apply additional supervisory measures on them.

Such banks with a significant retail presence in Singapore will also have to locally incorporate their retail operations.

Locally incorporated D-SIBs are required to meet higher capital requirements. This refers to the capital which they must set aside to absorb losses without causing them to go out of business as well as the money to absorb losses to provide a degree of protection to depositors.

They also have to comply with other safety measures such as the liquidity coverage ratio (LCR) which seeks to ensure that they have enough high-quality liquid assets to match total net cash outflows over a 30-day period. This is to enable them to tide over any market shock which may cause them to suffer a credit squeeze.

More askST stories here.