UPDATE 1-Singapore banks to face tougher capital rules than Basel III

SINGAPORE, June 28 Tue Jun 28, 2011 9:17am EDT

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SINGAPORE, June 28 (Reuters) - Singapore said on Tuesday it will make its banks hold higher capital levels than those set out under the new Basel III regulations, imposing some of the toughest new banking rules unveiled so far across the globe.

The Monetary Authority of Singapore (MAS) intends to make its local banks hold a higher level of top quality capital as a proportion of their risk-weighted assets than was agreed on by banking regulators in Basel.

Under the new rules, banks will have to hold a common equity tier one ratio -- which is retained earnings or shares -- of 6.5 percent as well as a conservation buffer of 2.5 percent, making a total requirement of 9.0 percent. That is two percentage points above the Basel III rules which requires banks to hold a total of 7.0 percent in top quality capital.

"We must maintain the high standards of financial regulations which have become associated with Singapore," Lim Hng Kiang, minister for trade and industry and deputy chairman of the MAS, said in a speech.

The Basel III rules were drawn up following the financial crisis to ensure banks were better positioned to withstand unexpected losses. Singapore tends to set particularly strict requirements for its banks given their systemic importance to its domestic economy and the fact that they cater to a large proportion of its retail banking market.

"Our financial sector has weathered several crises well. But we cannot take this for granted," said Lim.

However the city state's three domestic banks -- DBS , Oversea-Chinese Banking Corp and United Overseas Bank -- along with Citigroup's subsidiary Citi Singapore are unlikely to have to raise any new capital to meet the new rules.

They already hold high levels of capital, with DBS reporting a tier one capital ratio in 2010 of 15.1 percent.

"DBS maintains a robust core capital position and has strong capital generation capabilities to pay dividends and support business growth," CEO Piyush Gupta said in a statement.

David Conner, chief executive of OCBC, said he expected his bank would have few problems meeting the new rules.

"We expect to be able to meet MAS' revised CAR (capital adequacy ratio) requirements comfortably without having to raise any additional equity, undertake any rights issue, cut any dividends, or change our strategic plans," he said in a statement.

UOB also said it was confident of meeting the requirements.

While only a handful of countries have already announced how they plan to implement Basel III, Switzerland and China have both set a core tier one equity ratio lower than Singapore's plan. Switzerland's government has said however it wants to set a much higher capital buffer for its two biggest banks, Credit Suisse Group AG and UBS AG , which are facing an overall common equity requirement of 10.0 percent.

Singapore also plans to make its banks compliant with the Basel rules ahead of the official timetable, with banks having to meet the Basel minimum capital requirements by January 1, 2013, two years ahead of the Basel Committee's 2015 timeline. (For a full breakdown of the new rules click here )

Singapore's rival Hong Kong has not yet announced how it plans to implement Basel III, although in a letter to banks in January it said it intended to "adhere to the BCBS (Basel Committee on Banking Supervision) implementation timetable". (Additional reporting by Saeed Azhar; Editing by Raju Gopalakrishnan)

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