You are here

Singapore's proposed bail-in regime is credit positive for senior bank creditors: Moody's

[SINGAPORE] Moody's Investors Service says that Singapore's proposed statutory bail-in regime, applicable only to subordinated creditors and excluding senior unsecured creditors, legacy subordinated debt and deposits, is credit positive for senior bank creditors.

"The proposed bail-in regime excludes all existing and prospective senior debt, deposits, and interbank liabilities, making it one of the most investor-friendly in the world for non-subordinated debtholders," says Eugene Tarzimanov, Moody's Vice-President and Senior Credit Officer.

"As such, and if implemented, Singapore's regime will be credit positive for senior unsecured bondholders, because they will not be subject to bail-in outside of bank liquidation," adds Mr Tarzimanov.

Mr Tarzimanov was speaking on Moody's just-released report "Singapore Banks: Singapore's Proposed Bank Resolution and Bail-in Regime is Very Limited in Scope, a Positive for Bank Senior Creditors."

The proposals, published by the Monetary Authority of Singapore (MAS) on June 23, aim to strengthen MAS' powers to resolve failed banks while maintaining critical bank functions.

The proposals are largely in line with the Financial Stability Board's (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions, but significantly limit the scope of bank liabilities subject to bail-in to subordinated liabilities issued after the relevant statutory regime is implemented in Singapore.

The bail-in of such liabilities will complement the already issued Basel III-compliant securities with contractual loss-absorption.

"MAS's resolution regime, if and when coupled with the total loss-absorbing capacity (TLAC) requirement - which is currently only applicable with some exceptions to a handful of global systemically important banks - would create an incentive for the Singapore banks to issue more subordinated debt," says Mr Tarzimanov.

To date, the three large Singapore banks have issued around US$5 billion of Basel III-compliant securities, representing only 0.6 per cent of their consolidated assets.

The FSB's Key Attributes call for a framework that forces banks to create additional buffers of bail-inable liabilities that would minimise the costs of bank failures for taxpayers, something that the MAS's proposal can only achieve through subordinated liabilities - which are in short supply in Singapore.

MAS' investor-friendly approach reflects the authority's concerns over systemic contagion if losses were to be imposed on senior bondholders, says Moody's.

Singapore's banking system is highly concentrated, and the three domestic banking groups - DBS Bank Ltd, Oversea-Chinese Banking Corporation Ltd and United Overseas Bank Ltd - together account for more than half of total system assets.

In addition, the three banks already maintain prudent capital buffers, given that minimum capital requirements in Singapore are two percentage points higher than those recommended by Basel.

MOODY'S