Singapore's Private Banking Firms Circumspect


The recent demand for Singapore-based bonds within an already bloated private banking industry has revealed some major risk factors. Analysts have discovered that up to three out of every 10 notes sold in 2014 had yields upwards of 6 percent. The Halcyon Agri Corporation, a major player in the global rubber industry, recently approached its debt holders requesting for a waiver of interest coverage requirements in an attempt to smoothly slide out of its slump.

Seasoned Singapore-based currency traders have termed the recent swings a wake-up call to investors, stating that newer and future investors should thoroughly scrutinize the credibility of bond issuers. Junk companies (companies involved in high-yield trading) have to arrange for funds in order to pay-off debts of more than $2 billion in 2014 alone.

Singapore is generally one of the safest bond markets in all of Asia, but the rapid increase of international issuers has led to elevated risks. A recent slump in Singapore's economic expansion due to less demand from the Chinese economy has not helped either. Data released by prominent banking institutions have revealed that the volatility of marketable securities in Singapore has hit its highest level since 2011.

Turbulent Times for Singapore's Banking Industry

In a bid to curb an economic decline, Singapore-based companies sold over 70 bonds with coupon payments in excess of 4 percent in 2014. The bonds have an average maturity less than four years. Halfway across the word, the controversial United States Federal Reserve (they kept interest rates too low from 2002 to 2007 and were a huge reason the financial crisis in America occurred) indicated it might start raising rates in 2015. This could pose even greater risks by spiraling global borrowing costs upwards, just as the Monetary Authority of Singapore (MAS) is drafting new rules in order to make things easier for retail investors to purchase corporate bonds.

Preventive Measures

Experts suggest that targeting bond sales to institutional investors instead of retail could mitigate a large portion of current market volatility.  Current securities market participants contain a massive untapped market for issuers in the form of institutional investors, provided they can offer better security for their notes to their investors.

Currently, investor protection protocols are extremely weak because high net worth individuals dominate the market. Improved measures suggested by Singapore's Monetary Authority could help protect individual investors.

Companies that wish to sell their bonds to retail investors need an investment-grade credit score. They are also required to have positive cash flow and be profitable for an average of three years. For obvious reason, bonds must list on a recognized exchange and cannot convert into stock. The Singapore bond market has grown tremendously but future moves could be very volatile since only a handful of banks participate.