S'pore banks gain from Cyprus crisis
It is no fun being a saver any more - just look at Cyprus. Choose the wrong bank to look after your savings and you could find yourself wiped out virtually overnight if you are not careful.
That is why, without much fanfare, Singaporean lenders – among the world’s strongest banks – have become big beneficiaries of the Cypriot banking crisis.
In the past five weeks, OCBC shares have shot up to record-high levels, gaining 5.64 per cent to S$10.67 (Bt256), while United Overseas Bank rose 8.86 per cent, to a five-year high of S$20.77.
DBS Group Holdings is up 5.89 per cent to S$16 – its highest in almost six years.
The stock rally allowed the three lenders to outperform the benchmark Straits Times Index, which inched up 1.58 per cent over the same period. They also beat badly bruised European lenders, whose share prices – as measured by the MSCI Europe Banks Index – had fallen 10 per cent from their recent peaks this year.
What triggered the surge in share prices is the perception that wealthy depositors may be eager to switch their money from debt-ridden Europe to Singapore in their search for a safe haven.
Singapore bolstered investors’ confidence five years ago, after Lehman Brothers collapsed, by guaranteeing all bank deposits until the end of 2010. To make sure the guarantee had teeth, Singapore set aside S$150 billion from its reserves to insure deposits. That guarantee has since been withdrawn without being called upon, but deposits of up to S$50,000 continue to be insured under a bank deposit guarantee scheme.
In contrast, the Cyprus bank crisis strikes fear into investors’ hearts. Two weeks ago, the country shocked the world by threatening to impose a levy on all deposits – even those under 100,000 euros (Bt3.8 million), which were insured – to save its financial sector.
When that failed to wash with the Cypriot parliament, it pressed ahead with a plan to restructure its two largest ailing lenders, saddled with huge losses betting on government bonds issued by heavily indebted Greece next door.
That would involve depositors with more than 100,000 euros losing some of their savings as part of a 10-billion-euro bail-out agreement inked with the EU.
The bail-out inflicted huge losses on big depositors, with some analysts saying they could lose as much as 60 per cent of their savings.
Worse still, Cyprus killed its dream of becoming a financial centre by restricting residents from withdrawing more than 300 euros in cash a day.
