Singapore, Malaysia Guarantee Bank Deposits to Boost Confidence

By Jae Hur and Chen Shiyin

Oct. 16 (Bloomberg) -- Singapore and Malaysia will guarantee bank deposits to shore up confidence in the two Southeast nations' financial institutions amid a deepening credit crisis.

The Singapore government has ``decided to guarantee all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore,'' the Ministry of Finance and the MAS said in a joint statement. Malaysia announced similar measures on its central bank's Web site today.

Singapore and Malaysia follow Hong Kong, Indonesia, Australia and New Zealand in extending safeguards on deposits amid widening bank losses. The world's largest banks and securities firms have reported writedowns and credit losses of $647 billion, prompting the U.S. government to say it will invest in nine of the country's largest banks and central banks worldwide to cut interest rates to shore up liquidity.

Singapore's guarantee will take immediate effect and remain in place until Dec. 31, 2010, according to today's statement. The guarantee also extends to deposits placed with credit co- operatives in the Registry of Co-operative Societies, it said.

``MAS has a reputation for monitoring the markets quite intimately, and if things continue to deteriorate, the next phase will be the real economy,'' said Christopher Wong, who helps manage about $25 billion as an investment manager at Aberdeen Asset Management Asia Ltd. in Singapore. ``The three big Singapore banks are quite sound, but there are a lot of foreign banks operating in Singapore and it's good to pre-empt the fear factor.''

`Pre-emptive' Measures

Malaysia's guarantee takes immediate effect and extends to all ringgit and foreign currency deposits with commercial, Islamic and investment banks, and deposit-taking development financial institutions regulated by the central bank, the Ministry of Finance and Bank Negara Malaysia said in a joint statement.

``These measures are pre-emptive and precautionary, since Malaysian financial institutions are well-capitalized with ample liquidity, and confidence of depositors remains intact,'' the statement said.

Deposits will be fully guaranteed by the government through Perbadanan Insurans Deposit Malaysia until December 2010, according to the statement.

Backed By Reserves

Singapore had S$335.1 billion ($227 billion) in deposits as of August 2008, according to data released by the central bank.

The city's Ministry of Finance and MAS ``have assessed that a guarantee of up to S$150 billion will be well in excess of possible liabilities arising from the failure of any financial institutions,'' today's statement said. ``The guarantee will be backed by S$150 billion of the reserves of the Singapore government.''

Singapore's economy slipped into its first recession since 2002 in the third quarter after demand for exports weakened and bank losses mounted.

Before today's announcement, the Deposit Insurance Scheme, administered by the Singapore Deposit Insurance Corp., insured the first S$20,000 of all savings in the city's full banks and finance companies.

Hong Kong, Australia

The Hong Kong Monetary Authority said on Oct. 14 it will use its foreign exchange reserves to guarantee deposits and set up a fund from which banks can access additional capital.

Bank of East Asia Ltd., Hong Kong's third-biggest by assets, last month suffered a brief run on deposits at branches in the city amid speculation about its stability.

In Australia, Prime Minister Kevin Rudd said on Oct. 13 that the government will guarantee all deposits with institutions for the next three years and back all ``term wholesale funding'' by Australian banks operating in international credit markets.

The Monetary Authority of Singapore said this month it will review the marketing of investment products, after complaints that customers were misled into buying some products linked to now-bankrupt Lehman Brothers Holdings Inc.

Investors in Singapore and Hong Kong have held public protests to demand compensation after losses on investments linked to Lehman.

To contact the reporters on this story: Chen Shiyin in Singapore at chen37@bloomberg.net; Jae Hur in Singapore at jhur1@bloomberg.net