Singapore’s financial sector has come a long way since its humble beginnings as an Asian Dollar Market in the 1960s. The country has evolved to become a global leading financial centre that offers a broad and integrated array of banking and financial services.
The country’s sound regulatory framework, stable political environment and business-friendly environment is renowned. Singapore is the only country in Asia with a AAA sovereign credit rating from all major rating agencies. According to the Global Financial Centres Index (GFCI), Singapore is ranked 3rd most competitive financial centre in the world and the top financial centre in Asia.
The Rise of the Affluent Middle Class in Asia
Speaking at the IMAS Investment Conference 2024, Mr Chia Der Jiun, Managing Director, Monetary Authority of Singapore (MAS), reported that the rising middle-class population in Asia is projected to increase from 2 billion in 2020 to 3.5 billion by 2030. In particular, wealth in the affluent and mass-affluent segments is estimated to expand at an annual rate of 11% and 13% respectively from 2021 to 2026.
The International Monetary Fund estimates that Asia will reach 4.2% growth in 2024, higher than the global growth estimate of 3%. The size of the Asian middle class is set to double by 2025, from 2015 levels. Over the next five years, Asia will remain the fastest growing region in the world.
“Wealth in the region is expected to continue growing in the years ahead,” he said.
Resilient Financial Hub
Despite the global disruptions of recent years, Singapore’s financial sector remains resilient and has continued to grow. With the country’s geographical advantage and pan-Asian reach, the city-state is a gateway to the region; offering an excellent location for investors to set up business here. Adding to its international appeal as a financial hub are the country’s state-of-the-art financial facilities, reliable communication networks and transportation systems.
Because of the country’s status as a strong financial hub, more high-net-worth individuals from Asia are choosing to diversify their assets in Singapore. There has been significant growth in the community of Single-Family Offices – from just 400 receiving MAS tax incentives in 2020 to more than 1,100 as of 2022.
According to the 2023 Global Family Office Compensation Benchmark Report by KPMG, approximately 9% of the world’s family offices are in Asia, with 59% housed in Singapore.
It is reported that in 2023, Singapore provided more incentives by cutting taxes on a wider range of investments in both private and public companies. To meet the rising demand for family office services, private banking and wealth management firms have up their in-market capabilities.
Investing in Asset and Wealth Management
The city-state’s expertise in private banking, asset protection, estate planning and investment advisory services has made Singapore a destination of choice for wealth management activities in the region.
In Mr. Chia's address on the theme, “Investing in Change: Supporting Asia’s Development and Transition”, he noted that many asset managers and asset owners have based their regional operations in Singapore to tap into a diversified asset management community that supports Asia’s development. Assets under management (AUM) here grew steadily in the past decade at an annual rate of 12%. Particularly, Private Equity (PE) and Venture Capital (VC) AUM has been growing twice as quickly as overall AUM.
“Singapore is now a thriving launch pad for Asian enterprises looking to raise capital,” the EDB MD pointed out.
From 2017 to 2022, Singapore’s PE and VC AUM grew at an annual rate of 25% to more than S$500 billion.
Over half of these assets were directed towards supporting the growth of businesses in the APAC region. Global PE managers have also set up and deepened their APAC presence here. There are over 470 PE/VC managers in Singapore as of December 2023.
The Critical Banking Sector
MAS highlighted that, with a total asset size of almost US$2 trillion, the Singapore banking sector is critical to Singapore’s role in financing local and regional growth in trade and infrastructure. The sector’s strengths also cover areas such as treasury services and private banking.
Singapore’s 3 largest local banks, DBS, UOB, and OCBC, are ranked among the world’s strongest and most valuable banking brands. International banks also operate in Singapore, offering sophisticated banking solutions for corporate clients, financial institutions, and retail customers.
Financial services accounts for 14% of Singapore’s Gross Domestic Product, and the sector employs around 190,000 people – or around 5% of the total labour force.
Embracing FinTech and Innovations
The Singapore Government has embraced fintech and innovation as key drivers of growth in the financial sector. Through grants and funding support, regulatory sandboxes, innovation labs, regulatory guidance and collaborations, fintech festivals and events, international partnerships and more, the Government encourages the robust development of Singapore’s fintech ecosystem.
Singapore climbed to third place in the IMD World Digital Competitiveness Ranking (WDRC) for 2023; and moved up two spots to fifth place in the Global Innovation Index (GII), leading the Southeast Asia, East Asia and Oceania (SEAO) region.
In the Cushman and Wakefield’s Global Data Center Market Comparison 2023, Singapore is ranked 3rd globally for its market size, fiber connectivity, and cloud availability.
DBS Bank aims to bring its digital financial planning solutions to customers in the region. Mr. Shee Tse Koon, group head of DBS’ consumer banking group and wealth management, was quoted as saying that the plan is to quadruple the number of mass affluent individual investors who can access the bank’s financial advice and solutions in its markets by 2026.
The Malayan Banking (Maybank) launched an Islamic wealth management regional offshore hub in Singapore in November 2023. “We have chosen Singapore as our offshore hub for our Islamic wealth management given the position of Singapore as a wealth management player not just in the region but also globally,” John Chong, Maybank’s Group CEO of Community Financial Services, was reported as saying.
In November 2023, MAS and Bank Indonesia launched a new cross-border quick response (QR) payment linkage between Indonesia and Singapore. Customers of participating financial institutions in both countries will now be able to make cross-border retail payments when making purchases. Specifically, they can do so by using their existing mobile banking applications to scan QRIS (Quick Response Code Indonesian Standard) or NETS QR codes in Singapore and Indonesia.
Injecting additional $5 billion to develop the Financial Sector
To reinforce Singapore’s global competitive lead, the government announced that it will inject an additional S$2 billion into developing the Financial Sector Development Fund (FSDF); and another S$3 billion towards Research, Innovation and Enterprise 2025 (RIE2025) plan.
Administered by the Monetary Authority of Singapore, the FSDF provides grants to firms and individuals in the financial services sector. Launched in 2020, the RIE2025 plan had an initial commitment of S$25 billion. With the latest injection, Singapore’s investment in research, innovation and enterprise will be sustained at about 1 per cent of gross domestic product.
“This will give MAS more resources to take full advantage of current opportunities, and extend our lead in the financial services sector – not just to do more in the core areas of banking, capital markets, asset management, and insurance, but also to build capabilities in new areas like FinTech, as well as green and transition finance,” Finance Minister Lawrence Wong in his Budget speech in February 2024.
On the global FinTech industry, PwC reported an unprecedented growth over the past few years, especially during the COVID-19 pandemic as many countries transition into cashless societies. In its FinTech report, PwC revealed that 60% of respondents in the payments and 35% in the lending sector reported more than $10 million in annual revenue and it is expected that the number of global digital payment users will reach 5.48 billion by 2027.
It described the FSDF top-up to build capabilities in FinTech as “a timely measure to capture the new opportunities in this sector”.
The Region’s Net Zero Target Offers Growth Opportunities
In the speech made at the Institute of Banking and Finance (IBF) Distinction Evening on 19 October 2023, Deputy Prime Minister Heng Swee Keat pointed out that Singapore’s financial sector can support the regional net-zero transition proactively.
“Estimates show that $3.1 trillion of annual investment is needed in Asia to reach net zero. This is about $1 trillion more than current level of investment,” he said.
“Financial institutions will need to integrate sustainability considerations across operations. This will entail additional business demands and increased complexity of tasks – for example in developing new investment products and Environmental, Social, and Governance (ESG) toolkits/verification mechanisms.”
MAS, in partnership with the financial industry, launched the Finance for Net Zero Action Plan in 2023 with the aim to mobilise finance to catalyse Asia’s net zero transition.
In conclusion, as DPM Heng aptly described, Singapore’s financial sector is “mature, diversified, and well-reputed internationally”.
The country is well positioned to leverage on Asia’s robust economic growth to propel itself to global prominence in the financial sector. By capitalising on the region’s growth trajectory, Singapore emerges as a financial powerhouse embodying forward-thinking strategies, resilience and adaptability.