SINGAPORE — With a pandemic causing financial markets to tank and lots more uncertainty still on the horizon, investors have been flocking to keep their cash in Singapore, with bank deposits in foreign currencies reaching an all-time high of S$26.9 billion in April. 

In fact, such deposits have been steadily increasing since July last year, data from the Monetary Authority of Singapore shows. 

Analysts say the longstanding political crisis in Hong Kong, which started as a series of protests in June last year, the trade war between the United States and China, and uncertainties over the Covid-19 pandemic have led investors to direct their funds here. 

Since 2015, the value of foreign currency bank deposits has been hovering at between S$7 billion and S$9 billion but in July last year this figure went up to S$11.1 billion, a jump of more than S$3 billion, or 43 per cent, from the month before. 

Since then, the amount has gradually increased every month, breaching the S$20 billion mark in January this year to hit S$21.6 billion, before going up further to April’s all-time high. 

Ms Tania Gold, the senior director of banks at Fitch Ratings Asia-Pacific, said that the deposit inflows likely started ratcheting up in July last year because of the upheaval in Hong Kong, which started as a protest against a now-shelved extradition bill but has since evolved into a fight for greater autonomy from China. 

“Certainly Singapore saw inflows while Hong Kong saw outflows,” she said. 

Ms Pan Jingyi, a market strategist at IG Singapore, said that the protests, which stretched through the second half of 2019, underpinned investors’ search for safe havens. 

Singapore is generally seen as one such safe haven in Asia, given its reputation as a financial centre with strong government fundamentals, she added.

Another factor that led investors to park their funds here was the trade war between the US and China, which drove many companies to move some of their operations from China to Southeast Asia, said Mr Jack Wang, a partner in a fund management company. 

This means that capital would move to Singapore, given its position as the financial centre of this region, he pointed out. 

He added that currency fluctuations in emerging markets, such as Indonesia and China, might have triggered some capital flight to Singapore. 

The Covid-19 pandemic, which started hitting countries outside of China in February this year, has led to further risk aversion among investors in Asia, said Ms Gold. 

“The Singapore banks are the only banks in the Asia-Pacifc region we rate standalone in the ‘AA’ range and therefore more likely to attract funds in times of stress,” she said.

"AA" ratings mean that the financial institution has a very low risk of defaulting, based on Fitch’s assessment. 

Measures the authorities have undertaken here to tackle the pandemic could also be another factor, noted Ms Pan. 

“Early efficient handling of the matter coupled with a series of strong fiscal injections had likely only boosted the city-state’s allure,” she added. 

The Government has so far rolled out four Budgets this year to support businesses and workers hit hard by Covid-19.

WHAT MAS SAYS

In a statement, the Monetary Authority of Singapore said that while foreign currency deposits in Singapore have grown substantially since the beginning of this year, the growth has come from diverse sources and for varied reasons.

Total foreign currency non-bank deposits in Singapore’s banking system stood at S$781 billion at the end of April this year, 20 per cent higher than a year ago, the central bank said. 

"Media reports that said foreign currency deposits at Singapore’s banks jumped almost four-fold on a year-on-year basis in April 2020 appear to have focused on such deposits in just the Domestic Banking Units (DBU) and ignored the Asian Currency Units (ACU)," it added. 

"It is not meaningful to look at only the foreign currency deposits in the DBUs as they make up less than 5 per cent of the total of such deposits across both the DBUs and ACUs. The DBUs and ACUs are ledgers of the same bank held separate for regulatory purposes; MAS announced in 2015 that the two ledgers would be merged as there was no longer a meaningful purpose for the separation."

Legislative amendments to do away with the DBU-ACU divide were passed in Parliament in January this year, and will come into operation at a date to be announced, the MAS said.

It also added that the strong growth in foreign currency deposits in Singapore this year has come from a variety of sources – domestic, regional, and beyond the region.

"No single region or country source dominates. There are some well-known global drivers of this deposit growth amid the current Covid-19 related economic slump, including central bank actions that increase liquidity in the financial system, banks and corporate treasuries raising their liquidity profiles, and a higher level of precautionary savings by households."

Other financial centres have also seen significant deposit growth, the MAS noted.