Banking & Finance Essay

Question: Can Singapore Become Asia’s Leading Financial Centre? A financial centre can be defined as central locations where there are a large number of financial institutions such as banks and capital markets that allow currency to be collected, switched, disbursed and exchanged. Going forward, I will be listing down the factors leading to a successful international financial centre, the current state, challenges, strengths and weaknesses of Singapore’s financial centre, as well as proposed recommendations.

A Successful International Financial Centre. An international financial centre is generally used to portray an important participant in international financial market trading with at least one major stock market. Geography With the improvement of communication technology, some have argued that financial institutions can be located anywhere because computers can perform the functions of financial centres. Although we cannot deny on the previous sentence, geographically speaking, its location is still vital. It generally occupies a specific, compact area within a city.

These financial centres are situated where they are because of a diversity of historical, political and economic geographical factors. The locations of financial centres are still critical due to the types of functions that they act upon and the functions that give raise to them. Size of Sector A way to measure the size of the financial sector is via Gross Domestic Product (GDP). GDP is defined as the market value of all recognized goods and services produced by the country within a given period of time.

Skill Sets. One of the most important attributes of the competitiveness of international financial centres is the availability of highly skilled professional and managerial talent who signify the infrastructure of professional services. These talents are indispensable to ensure that leading firms can grow their business in worldwide and work with global clients. These professionals perform as an instrument to establish new relationships and network with foreign companies to provide new business opportunities.

Financial Services. There are several financial services that are offered by the finance industry, which surround and hold within a wide range of organizations that manages money. These financial services include banks, insurance companies, stock brokerages, investment funds and consumer finance companies. To diversify its earnings, there are banks that buy insurance or investment companies, but remain the original brands of the acquired firm and add the acquisition to its holding company. Current State The Ministry of Trade and Industry of Singapore announced on 13 July 2012 that Singapore’s GDP has contracted 1. percent. The fall was mainly due to a sequential contraction in the manufacturing sector. Nevertheless, on a yearly basis, the manufacturing sector grew by 3. 0 per cent due to the low base in the second quarter of 2011. Table 1. GDP at 2004 Prices Extracted from Ministry of Trade and Industry of Singapore Types of Services Offered Today, Singapore is home to more than 600 financial institutes offering a wide range of products and services. The table shown in Table 1 shows the type, number and breakdown of institutions in Singapore.

With MAS high regulations, it explains the successful financial sector here in Singapore. Table 2. Number of Financial Institutions and Relevant Organisations in Singapore Extracted from Monetary Authority of Singapore Percentage of Foreigners Referring to an article published on ‘Bloomberg’ in May 2012, it revealed that majority of the jobs created in Singapore last year went to foreigners instead of locals. The figure came up to 70 percent, 84, 800 positions. However, regardless of the wide discrepancy, Singapore’s unemployment rate remains low at 2. percent. Taxation Investors turned to Singapore to start businesses due to its well-known attractive corporate and individual tax rates. Furthermore, Singapore also offers one-tier tax system, extensive double tax treaties. With these taxation benefits, many investors invaded Singapore to start businesses, which in turn portray growth in out economy. Assets under Management AUM is defined as the market value of assets that an investment company manages on behalf of investors. Table 3. Assets Under Management Extracted from Monetary Authority of Singapore.

From Table 3, we can see that the asset management industry had reached a new high in Year 2010. The increase in AUM level represents a 5-year average AUM growth rate of 16% per annum in 2010, underscoring the resilience and dynamism of the fund management industry in Singapore. Challenges Singapore Faced In 2008, Singapore faced a global economic recession, sparked by the major failures of bank in United States. Our economy then grew with the aid by the sound policies of the government. Our GDP grew by 14. 5% last year, and by 5. 9% on a year-on-year basis in the third quarter of 2011.

Total employment grew by 24,800 in second quarter of 2011 and unemployment rate is at 2. 1%. By all measurements, our economy is healthy and our people employed. Strengths and Weaknesses With the growing number of infrastructure projects in Singapore, it is likely to spur the growth of project financing in Asia. Furthermore, with the great focus on good governance and building trust, Singapore was ranked first in corporate governance standards as well as maintaining an ‘AAA’ rating. The City of London’s Global Financial Centres Index ranked Singapore as first in the competitive financial centre in Asia and third globally.

Nevertheless, Singapore’s sturdy fundamentals will furnish us a firm footing to tap the region’s growth opportunities when they turn up. There are countless financial institutes in Singapore that are experiencing a lack of suitably skilled professionals to sustain the rapid growth. No doubt there are cohorts of graduates from local tertiary institutions each year, the industry still turns frequently to the foreign-trained talent to make up to the shortfall. Can Singapore Make It? Singapore is seen as a prime location for wealth and fund managements by investors worldwide.

Inferring from an article ’10 Emerging Financial Centres’ from Business Insider dated January 2010, Singapore is one of the tenth explosive growth and highly to become the new world financial leaders. The little red dot had proudly top Singapore’s developed and efficient banking sector make it an important player on the global stage. In ‘The Global Financial Centres Index 11’, Singapore was listed with the highest number of mentions where respondents expect to observe the most significant improvements in performance. I do believe that Singapore can become Asia’s Leading Financial Centres.

This is because, for the past years, Singapore has been portraying a significant amount of growth in the financial sector, as well as earning trusts from countries around the world. Together with MAS’s mission to promote sustained non-inflationary economic growth and progressive financial centre, Singapore will soon be next Asia’s Leading Financial Centre. Proposed Recommendations For a successful Singapore’s financial growth, there are several policies that we can implement to achieve it. Since we have a shortfall of expertise in Singapore, the first recommendation is to hire more foreign talents to complement the financial sector.

This is essential, as we require skilled and trained talents to rapidly allow Singapore’s financial to grow and tap onto the foreign countries. The second recommendation policy will be carrying out technology planning as it offers great flexibility. Also, we can leverage the resources and improve on cost controls. The last recommendation policy will be to entice investors by providing better investments incentives. For instance, with better incentives, investors will find that starting business in Singapore is not difficult. With more investors entering, Singapore’s economy will grow, so will be the financial growths.