The Monetary Authority of Singapore (MAS) will announce enhancements to its tax incentive scheme for single-family offices in July, says Senior Minister and MAS chairman Tharman Shanmugaratnam.
The coming change will recognise single-family offices’ voluntary contributions to charity and blended finance solutions, as well as their investments in climate change solutions both here and abroad, adds Tharman.
Speaking at the Association of Banks in Singapore’s (ABS) 50th-anniversary dinner on June 23, Tharman says single-family offices are a significant pool of capital growing faster than most other sources of wealth. “Overall, what we have to do is to strengthen the whole ecosystem of capital, expertise and compassion.”
This will help address what Tharman calls “the triple-headed crisis” of global warming, biodiversity loss and a global water crisis.
There is no lack of capital or wealth in the global system, but we need to incentivise and catalyse it, says Tharman in response to a separate question by moderator Vikram Khanna, associate editor at The Straits Times. “We need higher levels of investment over a long time to solve the world’s largest challenges, as well as national challenges everywhere in the world.”
Tharman calls for greater public-private partnerships. “If we just leave it to the markets, we’re not going to solve this problem; countries will be too slow, and the markets will be too slow. We need a combination of the public sector — including some concessional capital, especially the multilateral development banks and some bilateral provisions — the private and financial sectors. I think Singapore can play a very significant catalytic role in growing blended finance, as we call it.”
See also: 'We need financial regulation as a major public policy tool': Tharman
In recent years, Singapore has become an attractive wealth management hub, with hundreds of newly-established family offices setting up shop here to take advantage of the friendly business climate and sound investment framework.
However, the surge in the uber-wealthy population here has led to suggestions that the cost of living has been further driven up, and more of the money under management should be put to uses besides purchasing choice properties.
Higher yields
See also: 'Humbled' Tharman steps up to lead at a time of evolving challenges
Interest rate hikes throughout 2022 fuelled fatter net interest margins for banks here and abroad.
In response to a question about local banks’ record profits in recent quarters, Tharman notes that banks’ deposit rates have risen slower than their lending rates.
All three local banks, riding on higher net interest margins, reported all-time-high earnings for their FY2022 ended December 2022.
Some banks in other markets, enjoying similar gains, have been scrutinised. New Zealand, for example, is set to convene an inquiry to look at excessive profits earned by its local lenders.
“I think the banks were, if you asked me, a little slow to raise deposit rates for ordinary depositors,” says Tharman, known to be a proponent of social equality. As Finance Minister, he introduced Budgets with a perceivable shift to the left.
“Smart depositors would want to take advantage of various special rates. But for many depositors, deposits are quite sticky; they don’t think about it very much [and] there’s a lot of inertia. Many depositors, especially older folk, just leave their money in the bank,” says Tharman, who has announced his intention to stand for President.
MAS will ensure that banks are placing “minimal friction” on customers being able to shift their money into “higher-yielding deposits or assets”, says Tharman. “We want to make sure that banks are as transparent as possible in letting their customers know what the options are.”
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Speaking to bankers present at Shangri-La Singapore, Tharman tells them: “Help customers earn better returns on their deposits. I think it will bring you long-term trust.”
Tharman stresses that this is not to dampen the long-term profitability of banks but a call for “more transparency”. “We need to make it easy for customers to shift their money into high-yielding assets. It’s beginning to happen, but I would say a year ago I was a little concerned.”
Depositor flight
Following the failure of Silicon Valley Bank, First Republic and Credit Suisse this year, we now know that depositor flight is a source of risk, says Tharman. “The central bank has to be able to provide quick liquidity support for banks that are not insolvent but at the risk of depositor flight. It is critical for central banks to act quickly. That means that banks have to hold a minimum amount of assets that can be used as collateral in exchange for central bank liquidity.”
Credit Suisse was a salutary lesson, says Tharman. “Plus, the failure of some medium-sized banks in the US and elsewhere has forced a rethinking in financial regulation and supervision.”
The US Federal Reserve opted for a pause on interest rate hikes on June 14. But could coming hikes bring other vulnerabilities to the fore, asks Vikram.
“There are more casualties to come,” answers Tharman, noting that commercial real estate in the US is one vulnerable area. “You could get the vicious cycle between slower growth, higher credit risks and lower credit availability, with some sectors then being at the core of the vulnerability.”
‘Intellectual failure’
The world has reached the end of “the old era” of cheap carbon energy, cheap labour and global sourcing, says Tharman — “an era where globalisation was a source of not just improved prosperity, but [was] keeping costs down all over the world”.
Trouble is brewing among the world’s central banks, which have been the principal agencies globally for tackling inflation and keeping inflation low, adds Tharman. “They succeeded for 30 years, but something has gone wrong.”
While supply-side shocks like the outbreak of the Russia-Ukraine war have been blamed for the spike in inflation, Tharman points to “intellectual failure” among financial policymakers. “Central banks in particular, but also fiscal policymakers, have been operating with a paradigm that is no longer relevant.”
There has been too much reliance on monetary policy to solve economic problems that are of a much more complex nature, says Tharman. “We’ve had… more than 10 years of excess liquidity due to repeated waves of quantitative easing, together with close to zero interest rates or negative real interest rates. This is a very long period.”
He adds that financial models had predicted that any inflation that could arise would be transitory, but this did not turn out to be the case. Instead, asset prices soared. “Even today, after all the corrections we’ve seen, we have overvalued asset prices, particularly US equities, but I would say more broadly across the system.”
Over a decade, excessively low interest rates and excess liquidity have led to entire business models being founded on “cheap or virtually zero-cost money”, Tharman notes.
Now, he adds that overvalued financial assets, business models and even banking models that were reliant on cheap money will have to be unwound. “Unwinding is never a smooth process; it’s never pretty. [It] doesn’t mean a catastrophe, but somewhere in the neighbourhood, some cards are going to start falling.”
The world has moved from a broadly stable model with economic cycles to a world that is now inherently unstable, says Tharman.
If that is the case, financial policymakers’ task during “peacetime” is to build up buffers, he adds. “We did the opposite, globally; fiscal policymakers overdid it, and monetary policymakers removed all the buffers they have by taking interest rates down to zero and flooding the system with liquidity.”
The world must now assume that shocks are normal, and recognise that there are limits to traditional macroeconomic policy, says Tharman. “Stimulate private investment, stimulate innovation, try to get productivity growth going again through innovation and investment,” he adds. “That shift has to be made in the major economies as well as all of us globally.”
Photos: Association of Banks in Singapore
