Foreign banks with large deposits must incorporate in Singapore

Singapore takes an unusual step to protect its banking sector amidst the ongoing international financial crisis.

It will soon require foreign banks with large deposits to incorporate their retail operations locally, thereby forcing them to invest in the city-state.

Finance Minister and Deputy Prime Minister Tharman Shanmugaratnam said the new rules will apply to foreign banks that operate under the Qualifying Full Bank (QFB) licence.

"The key objective for requiring local incorporation is to strengthen depositor protection. One indicator of importance will be the QFBs' market share of domestic deposits,” he said.

QFBs enjoy greater privileges in Singapore. These include being allowed to open several branches; conduct a full range of banking services and accept retail deposits. In contrast, most other foreign banks are limited to just one branch. Not every QFB needs to be locally incorporated, however.

At present, only Citibank Singapore operates as a locally incorporated retail subsidiary. Standard Chartered has announced plans to do so.