||Tuesday, July 8,1997
The Straits Times, Page 2
Current Account and the Future Draft: People's bank stays relevant 25 years on
PERHAPS the question to ask, as POSBank celebrates its 25th anniversary as a statutory board tonight, is this: Is it still relevant as a national entity in late '90s Singapore?
In the late '60s after Singapore's independence, the astute Dr Goh Keng Swee, then Finance Minister, saw the potential of the Post Office Savings Bank, as it was called then, to be part of the national programme to extend the country's economy.
The traditional entrepot trade which had made colonial Singapore a successful place was no longer enough for a country with its own representative government and a settled population.
All the more so when the population increased at an alarming rate and the level of economic activity could not keep pace with it. There would be joblessness and social disruption, as Dr Goh relates in an essay, Why Singapore Succeeds, which is the first chapter in his 1977 book The Practice Of Economic Growth (Federal Publications).
Dr Goh, the acknowledged architect of the Republic's successful economy, decided together with his colleagues in the Government that the country should move quickly into industrialisation as well as create a financial centre.
But first, infrastructure such as roads, communication links and an efficient harbour had to be set in place. And this required the mobilisation of cheap funds. Savings collected by the Central Provident Fund were the main source of such funds. Deposits at the Post Office Savings Bank could be another.
And so the bank, whose history goes back to 1877 when the British set it up as part of the Straits Settlements postal department, was revitalised.
When it became a statutory board on Jan 1, 1972, its two principal functions as spelled out in the Post Office Savings Bank of Singapore Act of 1971 were:
* To carry onthe general business of a savings bank and to promote saving and encourage thrift: and
* To mobilise domestic savings for the purpose of public developement.
Over the last 25 years, POSBankñit acquired its new name in 1990ñhas carried out both its roles successfully, as well as set the pace for the other local banks to follow, especially in the use of information technology.
But the Singapore of today is very different from the Singapore of 30 years ago.
Other homegrown banks as well as foreign ones offer more services than POSBank which, because it is a statutory board, is essentially still a retail bank.
It cannot, for example, extend overdrafts to individual depositors, it cannot lend money to private corporations and it cannot invest freely in the market except in trustee stocks. Its hands are tied when it comes to growing its money in a more aggressive way.
But as the chairman of the bank, Mr Moses Lee, points out, promoting saving is still its mission. A new generation of Singaporeans has grown up in relative comfort and has not seen bad times. The tendency is to spend money rather than to save it.
Mr Lee, who is also Permanent Secretary in the Ministry of Labour, elaborates: "We encourage thrift and promote saving as a necessary value.
"As a parent, having gone through difficult times which my children are fortunate enough not to have gone through, I believe it is far more important for the young to appreciate saving for themselves and for their families.
"Affluence and consumerism must be matched by a desire to save. That must be a fundamental habit. And that must be the primary basis for the existence of the bank"
Statistics from the Monetary Authority of Singapore show that $7 billion were billed to credit and charge cards last year. Cardholders had $893.6 million worth of debt outstanding as at the end of the year, 8.2 per cent more than in 1995. Last year, banks issued 37,179 new cards and 9,871 supplementary cards.
In 1995, Prime Minister Goh Chok Tongñwho was a board director of the bank in the mid-'70s when he was managing director of Neptune Orient Lines ñ expressed his concern about Singaporeans saving less, by citing figures from the Household Expenditure Survey. Voluntary savings dropped from li per cent of gross income in 1988 to 5 per cent in 1993, he noted.
Still, POSBank's deposit base grew from $22.4 billion at the end of 1995 to $25 billion by the end of last year. People still are obviously saving. People must continue to do so, and it does not matter that they do not bank exclusively with POSBank, says Mr Lee.
"As long as they have at least an account with the bank, and they see it as natural to bank with us, then we are relevant."
It is Mr Lee's wish that every Singaporean has an account with POSBank. Last year, he launched a new product called First Account at Kandang Kerbau Hospital.
The First Account is a trust account set up by a parent for a child from his birth till he is five. Parents can save monthly for the baby through a Giro arrangement. Both the bank and the hospital will top up every such account set up with $1 each. Parents whose babies are born in other hospitals can open their First Account at any of the bank's branches.
By the end of April this year, there were 41,779 First Accounts with total deposits of about $45.5 million.
As we reach the close of the century, banks, like almost all other businesses, have had to reinvent themselves to succeed.
The rapid growth of information technology and the opening up of more and more countries and their markets have resulted in a global economy. Banks in a country no longer just compete among themselves, they also have to compete against other banks in the rest of the world.
Asia is projected to grow at a compounded rate of nearly 8 per cent in the next 10 years. This high economic growth will create a new middle and upper middle class of several hundred million.
Banks in Singapore must transform themselves or lose out to the more aggressive and innovative banks in the region and from around the world. As it is, the financial market in Singapore is still dominated by traditional banking products.
Mr Paul Maddox, a partner of Coopers and Lybrand Consultants, which has done an extensive survey of the future of banking in the region, points out that even the traditional concept of a bank must be revised.
The bank of the 21st century will not be so heavily focused on deposits, credit and the processing of payments. In these areas, there will be increasing competition from organisations such as supermarkets and insurers.
Many banks will have to move towards more value-added services as their core businesses, such as the provision of financial advice, the sharing of risk and the management of investments to maximise returns. In determining how to redefine themselves, banks have to identify their core competences, and throw out those services for which they do not have the expertise, or which eat up excessive capital and resources.
He points out that in setting up overseas business, it may not be cost-effective for banks to simply have separate operations in each country. It may be more appropriate to have regional centres to process transactions from several different countries. This can be done independently or through strategic alliances such as the recent Standard Chartered and NatWest trade processing tie-up.
Mr Maddox cites the example of Citibank's way to service the region at lower costs. Its processing centre in Singapore handles creditcard bills for 14 or more countries. Its centre in Penang handles trade processing region-wide.
As POSBank looks to redefine itself for the 21st century, it needs to consider its core strengths as potential bases for future development. For example, with its record of high volume, efficient and low-cost processing, the POSBank could be a processing provider to other banks in a strategic alliance. It could even also take over the IT functions of other banks.
PM Goh has listed prudence, stability and confidence as the three fundamental principles underpinning policy-making in Singapore. Prudence has been the hallmark of the POSBank because it is a people's bank. So it is unlikeIy to become a fully-fledged commercial bank, at least not in the next five years.
BUT there are observers who would like to see the bank getting more returns from its large funds.
Mr Alvin Tay, Money Editor of The Straits Times, who has tracked the financial industry since he joined The Business Times as a reporter in 1984, says: "At the time I joined the newspaper business, POSBank had total deposits of only $6 billion.
"That base has since risen sharply to $25 billion- an indication of its great success as a national savings bank.
"But the same cannot be said of the way it uses its funds. POSBank has very restrictive rules on what it can and cannot do with its funds. Maybe it can address that in the next 25 years."
Another critical area it can address has been suggested by Dr Augustine Tan, 57, economics lecturer at the National University of Singapore and a Member of Parliament for 21 years until he stepped down in 1991.
He says: "Encouraging, and mobilising savings are essential steps towards developing a modern financial system. The POSBank has been very helpful in the process by creating a huge pool of small accounts. Moreover, it has helped to keep loans competitive and affordable.
"For the future, the POSBank can be the vehicle to identify and encourage those segments of society which are not saving enough. This will help to reduce income and wealth inequality."
The heads of Singapore's two top commercial banks still see the promotion of thrift as the most important role of the national savings bank.
Says Mr Lee Hee Seng, chairman of Overseas Union Bank: "POSBank is a unique institution ideally placed to play an important and complementary role in promoting the virtue of thrift through savings among Singaporeans.
"As a savings bank with the largest network of branches and ATMs, POSBank should be commended for making it more convez nient for the savings habit to be inculcated."
Mr Wee Cho Yaw, chair; man of United Overseas Bank, is more conservative. "As a savings bank, POSBank has done yeoman service in inculcating the habit of thriftiness, especially among our young.
"I hope," he says, "that POSBank will concentrate on this important role and not be distracted by other commercial banking activities."