by Chris Kuan

The problem about going cashless rests with the Singapore banks and the regulatory regime. Much is said about high bank charges are obstacles to going cashless. There is good explanation making its round by an business owner who shows up the problem, contrasting with China putting pressure on banks to reduce charges.

The issue of high bank charges even before this whole thing about going cashless, is unresolved primarily because the Monetary Authority of Singapore (MAS) probably see maintaining high bank margins makes local banks safer. The primary control mechanism used by the MAS is the maintenance of high capital adequacy ratios (CAR), leaving Singapore banks with the highest CAR in the world.

But high CAR cost money, loads of it and yet Singaporean banks are also highly profitable. That can only happen if the banks charge high margins and high margins results from removal of competition and few even nonexistent regulations against oligopolistic behavior by the banks. As importantly, high margins provide the profitability that help banks rebuild their capital base should there be losses, an extremely important consideration from a regulatory perspective.

This is where we stand today, Our banking system is safe because banks have to maintain high capital ratios which are getting even higher under new global standards and banks earn high margins so that maintaining such high ratios is less onerous. The consequence is somebody has to pay for the safety of the banking system – i.e. depositors, borrowers and consumers.

That is what stands in front of going cashless. It will not happen just because the Prime Minister said so. There has to be action from the government via the MAS. The only other alternative is for vendors to increase their own margins to pay the charges which means consumers, once again, end up paying.

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