Funding of training fees upped to 70%

Funding of training fees upped to 70%

MAS’ move to push financial firms to invest in staff in downturn

By Michelle Tay

GETTING READY FOR THE UPTURN: ‘Institutions need to continue to invest in talent development even in the current market downturn to position them strategically to capture growth opportunities in the upturn.’ - Mr Ng Nam Sin, MAS executive director (left)

THE Monetary Authority of Singapore (MAS) has taken steps to further encourage financial institutions to invest in training talent during the current downturn.
It will boost its funding of training fees from the current 50 per cent to 70 per cent, MAS executive director Ng Nam Sin said yesterday.

The subsidy comes under the Financial Training Scheme.

Speaking at Singapore Management University (SMU) yesterday, Mr Ng explained: ‘Institutions need to continue to invest in talent development even in the current market downturn to position them strategically to capture growth opportunities in the upturn.

‘You need to continuously upgrade your skills and knowledge to keep up with market developments. As for institutions, it also takes foresight and commitment on the part of senior management to train and develop staff competencies.’

Larger incentives are in store for training programmes that are accredited under the Financial Industry Competency Standards (FICS), a set of competency standards that is benchmarked against international ones. They will get a higher grant support of 80per cent.

This support extends to individuals whose training programmes are not sponsored by financial institutions - they just have to attend and complete FICS-accredited programmes.

This is good news for banks such as Standard Chartered, whose Singapore-based staff have completed 16,000 training days so far this year - a 20 per cent increase year on year over the last three years.

Yesterday, 15 Standard Chartered private bankers graduated from the SMU-Standard Chartered Bank advanced diploma in private banking programme.

Mr Peter Flavel, Standard Chartered’s global head of private banking, told The Straits Times at the ceremony: ‘We still have a lot more to do in terms of the private bankers that the industry needs. What the MAS is doing is providing further incentive for companies to develop their people.’

These enhanced training incentives will be in place for two years, until Dec 31, 2010.

MAS also announced in Bahrain yesterday that it was in the ‘final stages’ of setting up a ’sukuk issuance facility’ that will allow it to issue domestic bonds complying with Islamic principles, as part of efforts to promote the growth of Islamic finance in Singapore.

Speaking at the 15th World Islamic Banking Conference in the gulf state yesterday, Mr Heng Swee Keat, MAS’ managing director, said: ‘As Islamic finance grows, cross-border transactions will multiply.

‘Legal, regulatory and supervisory frameworks that are developed should be based on internationally recognised principles and standards.’

The sukuk structure is based broadly on the sale-and-leaseback structure of an underlying property, called Al-Ijarah. Sukuk issued by the facility will be given regulatory treatment equal to that of Singapore Government Securities (SGS), and returns will be tied to the risk-free yield of SGS or equivalent tenor.

MAS said ‘a number of financial institutions have already expressed interest’, and it expects the first issue to take place at the start of next year.

But first, Mr Heng said, there is a need to continue to ‘broaden and deepen knowledge and expertise’ on Islamic finance among regulators and industry players.

He added that ‘an investors’ education platform’ to promote awareness of the risks of investing in Syariah-compliant products would not only serve to reinforce market discipline, but also boost demand for such products.

Source : Straits Times - 25 Nov 2008

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New international school In Singapore next year

New international school In Singapore next year

It will have 2,500 pupils; govt plans for up to 4 new schools scaled back for now
By Jane Ng

ANOTHER international school will come on the scene by September next year, offering an American-style curriculum to an eventual enrolment of 2,500.
The Stamford American International School will be set up by Cognita, an international education group that runs 50 schools worldwide, including the Australian International School here.

The group has been awarded a former school site in Upper Serangoon by the Government, which, for the first time in August, listed public buildings and vacant plots to be made available to run up to four more foreign schools.

Its call for proposals for these additional schools was in response to an overwhelming demand for places; international schools were full and had long waiting lists. The shortage of places was so dire that it was a stumbling block for companies looking to bring in expatriate employees and their families.

But in a sign of how the economic downturn has dampened activity even in the education industry, the government committee chaired by the Economic Development Board (EDB) offered just one site - to Cognita - even though it received more than 20 proposals.

EDB’s director of education and professional services, Mr Toh Wee Khiang, said many proposals were very good, but the committee decided to take a conservative view because of the economic situation.

‘It’s better to be prudent. With the current economic situation, there will be some volatility, but in the long term, we are confident the demand will remain strong.’

Turning to Cognita, he said the new school would ease the shortage of places, and that the committee may make another call for proposals next year.

The recent proposals were assessed on factors such as the quality of their education programmes, track record, amount invested and commitment to start classes next year.

Mr Toh said Cognita was picked because of ‘a clear, immediate demand’ for an American-style curriculum, and also because it had a good track record and was a trusted brand name.

After taking over the running of the Australian International School last year, Cognita announced a $33 million expansion plan just months after the school opened a new extension for its pre-schoolers.

Its managing director for Asia, Mr Brian Rogove, said the company is keen to expand its presence here and in South-east Asia. It recently set up its Asian regional headquarters here.

Stamford American International School will start next year with 600 pupils from kindergarten to Grade 6 or 8, and use an interim campus until its Serangoon site is ready in 2011.

The premises of the former Upper Serangoon Secondary at 279, Upper Serangoon Road, will be torn down to make way for Stamford’s campus.

Mr Rogove said the school’s eventual enrolment will include students up to Grade 12. Its United States-based curriculum will have a strong focus on foreign languages.

To date, 19 international schools are using state properties as campuses.

Source : Straits Times - 25 Nov 2008

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US govt goes to Citigroup’s rescue

US govt goes to Citigroup’s rescue

Bank to receive capital injection of US$20b and credit loss guarantees

NEW YORK: The United States government has bailed out Citigroup, agreeing to shoulder most of the potential losses on US$306 billion (S$463 billion) of high risk assets and inject US$20 billion of new capital, in its biggest rescue of a bank yet.
Citigroup’s rescue marks the latest US effort to contain a widening financial meltdown that has caused the disappearance or bankruptcies of companies including Bear Stearns and Lehman Brothers.

If it works, the package may become a template for other US banks expected to face growing losses as the economy sinks into recession. Credit losses once concentrated in mortgages are already bleeding into other areas such as credit cards and commercial real estate.

Capital at Bank of America and Wells Fargo could ‘fall short of the comfort zone’ in a very severe recession, analysts have said. Bank of America is buying Merrill Lynch and in July, bought troubled mortgage lender Countrywide Financial while Wells Fargo is buying Wachovia. Merrill and Wachovia have had significant losses tied to mortgages.

The government’s US$20 billion of new capital comes on top of US$25 billion it had put into the second-largest US bank by assets, and it will receive preferred shares with an 8 per cent dividend in return.

Citigroup shares jumped by more than 50 per cent to $5.80 in early trading yesterday morning in response to the news.

The Treasury Department could end up absorbing US$5 billion of losses, the Federal Deposit Insurance Corp, US$10 billion, and the Federal Reserve, the rest.

The bank estimated that it will receive US$40 billion of capital benefits, partially from the government guarantee.

Citigroup received the latest infusion after its shares plunged 60 per cent last week to US$3.77, amid worry it lacked enough capital to survive.

In return for the bailout, Citigroup’s dividend will essentially be wiped out. The bank cannot pay out more than 1 cent per share per quarter over the next three years without government consent. The quarterly dividend is now 16 US cents.

Citigroup has the farthest international reach of any US bank, with operations in more than 100 countries. The bank was widely perceived to be too big to be allowed to fail, because any collapse could cause financial havoc around the globe.

The bank will try to modify troubled mortgages in the US$306 billion portfolio as the government tries to keep homeowners out of foreclosure.

Chief executive Vikram Pandit and other members of top management will keep their jobs but the government will have the final say on executive pay packages.

Asian stock markets trimmed earlier losses yesterday following the Citigroup announcement, while several European stock indices rose. Citi’s shares soared on the news of the rescue, jumping 42 per cent to ¥4.20 at 0819 GMT in Frankfurt.

But not all investors were pleased. ‘You’re seeing an inept management team being rewarded by the US government,’ said Mr William Smith, chief executive of Smith Asset Management in New York, which owns Citigroup stock.

The rescue further magnifies the US government’s burden, following bailouts of American International Group, Bear, Fannie Mae and Freddie Mac, and the injection of hundreds of billions of dollars into banks and other financial institutions.

Well over US$1 trillion of taxpayer money is at risk, and the Big Three carmakers in Detroit are seeking billions more to avoid possible bankruptcy.

The administration of President-elect Barack Obama may also propose a US$500 billion to US$700 billion economic stimulus when he comes into office on Jan 20.

The Fed, the Treasury Department and the FDIC called the Citigroup rescue ‘necessary to strengthen the financial system and protect US taxpayers and the US economy’.

Citigroup estimated the injection will give it a Tier-1 capital ratio of 14.8 per cent, more than twice what the government requires. The bank said it will also get increased access to the Fed’s discount window, adding liquidity.

‘In the near term, it reduces systemic risk but it does raise questions about what it means for the industry longer-term,’ said Mr David Forrester, foreign exchange strategist at Barclays Capital in Singapore.

REUTERS

Source : Straits Times - 25 Nov 2008

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Asian property markets on investors’ radar

Asian property markets on investors’ radar

Top picks are Japan, Australia, China, HK and Singapore

`(HONG KONG) Asia’s battered property markets are starting to attract strong interest from investors, with Japan, Australia, China, Hong Kong and Singapore among their top picks in the region.

Property fund manager LaSalle Investment Management, which raised a US$3 billion fund in August, expects Hong Kong and Singapore to recover first from the financial turmoil.

Said regional director David Edwards: ‘We are seeing a decline in values throughout the region. There are properties that are being sold at much lower prices than the market’s perception of their values.’

ING Real Estate plans to double its investments in Asia to US$1 billion, with most of its investors in Europe wanting to diversity into the region, said the firm’s Asia-Pacific managing director, Nicholas Wong.

ING invested mostly in China and Japan, he said, and was now marketing a US$750 million fund to build Chinese housing. Several Asian markets were already 30-40 per cent off their peaks, he said.

And a Reuters poll last week found that analysts believe that Hong Kong and Singapore prices are set to fall by at least a fifth in the next year.

‘Most of our clients are from the UK and Europe and traditionally, they invest only at home,’ Mr Wong said. ‘Now, they want global exposure and most of them want to go to Asia for diversification.’

With Hong Kong, Japan and Singapore in recession, Asian developers are battling falling demand and tighter credit, even after efforts by central banks to encourage lending by slashing key rates.

In Hong Kong, the de facto central bank has lowered its base rate twice in the last month, while in China, monetary authorities have cut borrowing costs three times since mid-September.

‘The risk of bankruptcies are still higher throughout Asia and most financial institutions are not out of the woods yet,’ said Kelvin Lau, economist at Standard Chartered Bank. ‘That’s why overall lending conditions have not yet returned to normal.’

In Japan, more than 400 small and medium-sized developers have gone out of business this year as the residential market slowed and as credit dried up. But the tough environment is not stopping property investors from prowling the region for bargains.

‘The present environment is incredibly difficult. As a business, we are taking a cautious approach. But we are still looking,’ said LaSalle’s Mr Edwards.

LaSalle has so far invested US$10 billion in Asia and nearly half the amount is in Japan, he said. The company is also keen on Australia and China, he added.

Other investors were optimistic that some property segments would recover soon. China’s ailing housing market, for instance, may stabilise in about six months and recover in two years, before most other Asian countries, said Cheng Soon Lau, managing director at Invesco Real Estate Asia.

Invesco is planning to invest directly in China, Japan, Hong Kong and Singapore, buying office blocks and building housing.

Managers of securities funds are becoming less worried that investors will withdraw money, according to Chris Reilly, director of property for Asia at Henderson Global Investors. ‘Right now, there is really not much redemption,’ he said. ‘The cycle of redemption was more severe in the last 2007 and early 2008, the period when retail investors are quite scared.’ - Reuters

Source : Business Times - 25 Nov 2008

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Cognita wins site to set up school

Cognita wins site to set up school

Group runs more than 45 schools in UK and Spain

By NOOR AISHA

(SINGAPORE) International education group Cognita has been awarded a state site at the former Upper Serangoon Secondary School, to set up an international school.

This is the first time that a Request-for-Interest (RFI) exercise has been conducted to award state land sites for foreign system schools (FSS).

Cognita plans to set up the Stamford American International School, offering a US-based curriculum. It expects its first intake next September, with an initial 600 students. This will eventually expand to 2,500 students, easing the tight supply of FSS places offering American-style education.

Based in the United Kingdom, Cognita owns and operates over 45 independent schools in the UK and Spain.

It acquired the Australian International School of Singapore last year, and recently set up its Asian Regional Headquarters in Singapore.

The RFI exercise, which started in mid-August, saw proposals being assessed based on a matrix of factors.

These include quality of project, ability to meet market demand and investment commitment such as the ability to begin classes in academic year 2009.

‘Singapore Land Authority (SLA) will work closely with Cognita to assist them to ensure that they can kickstart their operations and redevelopment plans quickly,’ said Teo Cher Hian, SLA’s director of Land Operations (Private).

Mr Teo added that despite the current economic climate, SLA still sees sustained demand for state properties for international schools.

To date, 19 international schools are using state properties as campuses.

Source : Business Times - 25 Nov 2008

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Australian private property fund aborts Singapore acquisitions

Australian private property fund aborts Singapore acquisitions

Blaxland strikes out despite downsizing from $300m planned portfolio

By KALPANA RASHIWALA

(SINGAPORE) AN Australian private property fund manager that had been expected to buy some $200 million of Singapore industrial properties including eSys Technologies building in Changi North has decided not to proceed with the acquisitions.

No deal: eSys Technologies building is one of two industrial properties that Blaxland has forfeited its deposit on
Blaxland Funds is said to have put its plans on hold, given current weak market conditions, and is not expected to transact anything here in the near future.

Industry observers reckoned that the current tight funding climate and weak investor sentiment were likely reasons.

Some sources suggested that the deal-breaker was ‘the rapidly changing market conditions’ here.

‘It may have boiled down to making a call on the market. Is this the right time to buy industrial property in Singapore?’ said an industry observer.

‘After doing their due diligence and appraisal, Blaxland decided not to proceed with the transactions,’ he added.

BT understands that Blaxland may have found better-value opportunities emerging in its home market, Australia.

Blaxland Funds Group is a joint venture between its executive staff and The Myer Family Company.

It set up a representative office in Singapore earlier this year and is said to have planned to assemble an industrial property portfolio worth over $300 million initially.

In June, it signed Memoranda of Understanding to purchase five assets on the island for around $200 million. Around August, it was said to have shortlisted two of those properties - eSys Technologies’ building in Changi North and SH Cogent Logistics’ warehouse building at Penjuru Close in Jurong.

Blaxland had paid deposits totalling a few hundred thousand Singapore dollars to the sellers, BT understands. It had to forefeit these deposits when, at the beginning of this month, it decided against proceeding with completing the two transactions.

The SH Cogent Logistics building is a brand-new, five-storey ramp-up warehouse with a lettable area of about 400,000 square feet. The building is on a site with a remaining lease of over 20 years. It received Temporary Occupation Permit this year. The property is about 80-90 per cent occupied. Blaxland was to have paid some $50 million for this property.

The eSys Technologies building, which was to have been sold for more than $20 million, is under five years old. It has a lettable area of about 180,000 sq ft and the balance lease term on the site is also understood to be over 20 years.

eSys Technologies and SH Cogent Logistics were to have leased back their respective properties for five years had the sales to Blaxland proceeded.

Industry sources said that the other three properties Blaxland had inked MOUs for are in Ubi and Changi.

Source : Business Times - 25 Nov 2008

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Sleepless Citi

Sleepless Citi

Poor oversight, risk-management practices brought down what was once the largest and mightiest US financial institution

IN SEPTEMBER last year, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives gathered in a wood-panelled library to assess their own well-being.

Clearly in trouble: Citigroup has been brought to its knees by more than US$65 billion in losses, write-downs and charges
There, Citigroup chief executive Charles Prince learned for the first time that the bank owned about US$43 billion in mortgage-related assets. He asked Thomas Maheras, who oversaw trading at the bank, whether everything was OK.

Mr Maheras told his boss that no big losses were looming, according to people briefed on the meeting who would speak only on the condition that they not be named.

For months, Mr Maheras’s reassurances to others at Citigroup had quieted internal concerns about the bank’s vulnerabilities. But this time, a risk-management team was dispatched to more rigorously examine Citigroup’s huge mortgage-related holdings. They were too late, however: Within several weeks Citigroup would announce billions of dollars in losses.

Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses.

‘They pushed to get earnings, but in doing so, they took on more risk than they probably should have if they are going to be, in the end, a bank subject to regulatory controls.’

- Roy Smith,
a professor at the Stern School of Business at New York University

But many Citigroup insiders say that the bank’s risk managers never probed deeply enough. Because of long-standing ties that clouded their judgments, the very people charged with overseeing deal-makers eager to increase short-term earnings - and executives’ multimillion-dollar bonuses - failed to rein them in, these insiders say.

Today, Citigroup, once the largest and mightiest US financial institution, has been brought to its knees by more than US$65 billion in losses, write-downs for troubled assets and charges to account for future losses. More than half of that amount stems from mortgage-related securities created by Mr Maheras’s team - the same products that Mr Prince fretted about in the meeting last year.

Citigroup’s stock plummeted to its lowest price in more than a decade, closing last Friday at US$3.77. At that price, the company was worth just US$20.5 billion, down from US$244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year ago.

And as the credit crisis appears to be entering another treacherous phase despite a US$700 billion federal bailout, Citigroup’s woes are emblematic of the haphazard management and rush to riches that enveloped all of Wall Street. All across the banking business, easy profits and a booming housing market led many prominent financiers to overlook the dangers they courted.

While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank.

Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report that it sent to Citigroup.

The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr Prince and Robert Rubin, an influential director and senior adviser.

Citigroup insiders and analysts say that both men played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr Prince and Mr Rubin both declined to comment for this article.

When he was Treasury secretary during the Clinton administration, Mr Rubin helped to loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period, he helped to beat back tighter oversight of exotic financial products, a development that he had previously said he was helpless to prevent.

And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr Rubin, who is an economic adviser on President-elect Barack Obama’s transition team, has sat atop a bank that has been roiled by one financial miscue after another.

Citigroup was ensnared in murky financial dealings with the defunct energy company Enron, which drew the attention of federal investigators; it was criticised by law enforcement officials for the role that one of its prominent research analysts played during the telecommunications bubble several years ago; and it found itself in the middle of regulatory violations in Britain and Japan.

For a time, Citigroup’s megabank model paid off handsomely, as it rang up billions in earnings each quarter from credit cards, mortgages, merger advice and trading.

Balkanised culture

But when Citigroup’s trading machine began churning out billions of dollars in mortgage-related securities, it courted disaster. As it built up that business, it also moved billions of dollars of the troubled assets off its books through accounting manoeuvres to free capital so that the bank could grow even larger. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses.

To some, the misery at Citigroup is no surprise. Lynn Turner, a former chief accountant with the Securities and Exchange Commission, said that the bank’s balkanised culture and pell-mell management made problems inevitable.

‘If you’re an entity of this size,’ he said, ‘if you don’t have controls, if you don’t have the right culture and you don’t have people accountable for the risks that they are taking, you’re Citigroup.’

Mr Prince was replaced last December by Vikram Pandit, a former money manager and investment banker whom Mr Rubin had earlier recruited in a senior role. Since becoming chief executive, Mr Pandit has been scrambling to put out fires and repair Citigroup’s deficient risk-management systems.

Citigroup executives responded with a 25-page single-spaced memo outlining a sweeping overhaul of the bank’s risk management.

In May, Brian Leach, Citigroup’s new chief risk officer, told analysts that his bank had greatly improved oversight and installed several new risk managers. He said that he wanted to ensure ‘that Citi takes the lessons learned from recent events and makes critical enhancements to its risk management frameworks. A change in culture is required at Citi’.

Meanwhile, regulators have criticised the banking industry as a whole for relying on outsiders to help them gauge the risk of their investments.

‘There is really no excuse for institutions that specialise in credit risk assessment, like large commercial banks, to rely solely on credit ratings in assessing credit risk,’ John Dugan, the head of the Office of the Comptroller of the Currency, the chief federal bank regulator, said in a speech earlier this year.

But he noted that what caused the largest problem for some banks was that they retained dangerously big positions in certain securities - such as collateralised debt obligations (CDOs) - rather than selling them off to other investors.

‘What most differentiated the companies sustaining the biggest losses from the rest was their willingness to hold exceptionally large positions on their balance sheets which, in turn, led to exceptionally large losses.’

Mr Dugan did not mention any specific bank by name, but Citigroup is the largest player in the CDO business of any bank the comptroller regulates.

For his part, Mr Pandit faces the twin challenges of rebuilding investor confidence while trying to fix the company’s myriad problems.

Citigroup has suffered four consecutive quarters of multibillion-dollar losses as it has written down billions of dollars of the mortgage-related assets it held on its books.

‘They pushed to get earnings, but in doing so, they took on more risk than they probably should have if they are going to be, in the end, a bank subject to regulatory controls,’ said Roy Smith, a professor at the Stern School of Business at New York University before the bank was rescued on Sunday. ‘Safe and soundness has to be no less important than growth and profits but that was subordinated by these guys.’ - NYT

Source : Business Times - 25 Nov 2008

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Keeping backbone of Singapore economy strong

Keeping backbone of Singapore economy strong

SMEs will need to effectively manage their strengths and vulnerabilities amid the financial turmoil. Here are some ways they can make their organisation leaner and more agile

By JEYA POH WAN SUPPIAH AND CHIU WU HONG

SMEs have traditionally been a hotbed of innovation and entrepreneurial activity, adding strength and resilience to Singapore’s economy. Such qualities are especially crucial in the current economic turmoil.

Prudence needed: SMEs must re-evaluate their cost structure and use cash cautiously in this current economic climate
According to SPRING Singapore, SMEs make up 95 per cent of the island’s enterprises and generate about 45 per cent of gross domestic product. They also employ about 60 per cent of the the overall work force. SMEs, therefore, form the backbone of the economy.

There are three main categories of SMEs. The first are those built on experience gained by an entrepreneur while working for a multinational corporation. The entrepreneur identified a functional need in the MNC’s value chain and became an external provider.

The second are those built by entrepreneurs who gave up a formal career to pursue an area of interest they believed held economic promise.

Both types of entrepreneur have generally had formal educational training. But most SMEs are in the third category - built by entrepreneurs who graduated from the school of ‘hard knocks’. These people generally have sharp business acumen and a keen nose for opportunities.

Sons and daughters of the soil

Entrepreneurs in all three categories tend to share a common trait - they are usually locally born and bred, with an intimate knowledge of the Singapore market and its conditions, which gives them a ‘home ground’ advantage.

Typically, due to limited funding ability, they operate in non-capital intensive industries with low-cost barriers. The lack of funding options also means they depend on their own savings, often supported at first by seed money from family members and/or friends.

As their business grows, they rope in members of their extended family to inject talent and resources. Further down the road they begin to realise the need for ‘outsiders’, and eventually hire professionals to manage and run the company in ways that are expected by their more sophisticated business counterparts and associates.

However, at this stage they also face the most enduring challenge that confronts SMEs - attracting and retaining external talent. Many professionals prefer to work for an MNC with a big brand name.

Management style

Many entrepreneurs take a paternalistic approach to their staff, forming personal relationships with them. In a sense, the identity of the staff is intrinsically tied to the company.

While the business may grow significantly, many SME entrepreneurs tend to continue it as if it is a start-up. There is often reluctance to relinquish control to others, especially to those who are regarded as outside the ‘family’ circle.

Many SME entrepreneurs also believe in keeping their earnings in cash, remembering their earlier days of hardship. This is mainly due to difficulties they may have encountered raising funds when they started. Although by this time they may have more financing choices, they tend to believe in cash on hand, kept mainly in fixed deposits, to provide for rainy days.

Those with ready cash are well-placed to take advantage of the many cheaper investment and growth opportunities available during economic downturns.

Economic uncertainty

Amid the current turmoil, we believe SMEs will need to manage their strengths and vulnerabilities by positioning their business to respond effectively to short-term challenges while planning for long-term growth.

They will need to re-evaluate their cost structure and use cash cautiously. This can include co-sourcing, shared service centres, streamlining infrastructure and business process optimisation.

Ultimately, the goal is to make the organisation leaner and more agile, thereby building a sustainable cost advantage for the longer term. SMEs can also consider the various types of schemes and incentives available from the government.

In our experience, not many SMEs undertake tax planning. they either see no need for it or do not understand or appreciate the benefits. SMEs should give more thought to reducing their tax exposure by way implementing tax planning.

Another step SMEs can take is to focus on training. In-house training is an inexpensive but effective way to upgrading workers so they can deal with ever-changing market conditions.

Singapore companies tend to pride themselves on product promise and delivery. When it comes to marketing, SMEs often fail to take advantage of the Singapore brand as a trusted label locally and internationally.

Many SMEs have yet to fully use this factor as a selling point. They should give much more thought to showcasing their products as ‘Made in Singapore’, as this will surely give them a competitive edge in the global marketplace.

This article is contributed by Jeya Poh Wan Suppiah, partner, KPMG LLP, and Chiu Wu Hong, executive director, Tax, KPMG Tax Services Pte Ltd. The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG in Singapore.

Source : Business Times - 25 Nov 2008

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Grim outlook for Asia next year, IMF warns

Grim outlook for Asia next year, IMF warns

Policymakers urged to use all fiscal, monetary weapons to maintain financial stability and support growth

By ANTHONY ROWLEY
IN TOKYO

ASIA’S economic outlook for the coming year or more is grim and policymakers will need to ‘react decisively to maintain financial stability and support growth,’ the IMF warned in a report published last night.

‘With the global slowdown dampening exports, growth in Asia is projected to come primarily from domestic demand, which is nonetheless expected to slow.’

- IMF’s Regional Economic Outlook for Asia and the Pacific

Governments in Asia will need to employ all the fiscal and monetary weapons at their disposal to safeguard financial systems and maintain orderly credit conditions in the face of crisis, the report said.

The report firmly rejects the notion that Asia has ‘decoupled’ from economic cycles elsewhere, saying instead that trade and financial integration between Asia and the rest of the world has actually increased over the past decade.

Economic growth across the Asia region as a whole will slow from 7.5% in 2007 to 6% this year and 4.9% in 2009, Jerald Schiff, senior advisor in the IMF’s Asia and Pacific Department told Business Times in a tele-conference call from Washington last night.

China is central to the projections for the region and the IMF is expecting China to grow by 8.5% in 2009 which should produce overall growth rates in ‘emerging’ Asia of 7.7% in 2009 and 6.5% in 2010, Mr Schiff said. But exports from the rest of the region to China are already slowing and much depends on how successful fiscal and monetary stimulus measujres in China prove to be, he added.

‘With the global economy entering a major downturn amid deepening financial crisis, Asia is confronting the likelihood of sharply slowing growth and increased vulnerabilities,’ said the IMF in its latest Regional Economic Outlook for Asia and the Pacific. ‘In particular, global financial stresses and the process of deleveraging by financial institutions are expected to continue beyond next year. This will dampen economic prospects in the region via a number of channels, notably lower demand for Asia’s exports, tighter funding conditions, more volatile capital flows, depressed equity prices and confidence, and deteriorating loan quality.’

Growth in Asia will slow substantially before beginning a recovery in late 2009, according to the report. ‘With the global slowdown dampening exports, growth in Asia is projected to come primarily from domestic demand, which is nonetheless expected to slow.’

The only bright spot is that inflation appears to have peaked on the back of falling commodity prices, the IMF suggests. But it warns that ‘risks to the outlook are considerable and tilted firmly to the downside. A severe global recession, combined with a deeper-than-expected credit squeeze, would have significant spillovers to the region, through exports and a range of financial channels.

‘In particular, it remains unclear how domestic demand would stand up to a sharp decline in export growth and tighter financial conditions. In this volatile environment, policymakers in Asia need to be ready to react decisively to maintain financial stability and support growth. Policies to safeguard financial systems and maintain orderly credit conditions will be key, the report says.

‘Efforts should include strengthening of crisis management systems and contingency planning, enhancing oversight of banks’ liquidity management, and improving risk management to address a likely rise in non-performing loans. Temporary credit guarantees may be necessary to ensure the normal flow of credit, and authorities have to stand ready to recapitalise banking systems if needed.’

In most Asian countries where domestic demand is easing, financial conditions have tightened, and monetary easing would be appropriate, the IMF suggested.

‘Monetary policy will have to ensure sufficient provision of liquidity for orderly market functioning. Many countries would appear to have room for additional fiscal stimulus, which may prove necessary in particular should the current financial environment limit the effectiveness of monetary policy. While attention is focused on near-term risks, longer term issues will return to the fore when the worst of the crisis has passed.’

Source : Business Times - 25 Nov 2008

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October inflation eases on lower petrol prices

October inflation eases on lower petrol prices

But at 6.4%, it’s still higher than expected due to a 21% hike in electricity prices

By UMA SHANKARI

INFLATION eased in October as petrol prices fell, data released yesterday by the Department of Statistics shows. But it was still higher than the level most economists had expected, as the price of electricity was hiked 21 per cent last month - the biggest one- time increase in about seven years.

Power trip: The 21 per cent jump in electricity prices last month is the biggest one-time increase in about seven years
The Consumer Price Index (CPI) was up 6.4 per cent year-on-year in October, after a 6.7 per cent rise in September. It hit a 26-year high of 7.5 per cent in June.

‘Headline year-on-year inflation moderated in October, although less sharply than market expectations due to the electricity tariff hike, which led to the sharpest increase in inflation on a seasonally adjusted, month-on-month basis since January,’ said Citigroup economist Kit Wei Zheng.

The rise in October’s CPI was fuelled by higher housing and food costs. Food costs went up 7.8 per cent year on year. Housing cost, which includes electricity prices, rose 16.4 per cent.

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‘Some of the rise in October is obviously explained by the hike in the electricity tariff,’ said HSBC economist Prakriti Sofat. ‘However, the main component within housing is owner-occupied (imputed rents), with the HDB sector being the mainstay.’

With the property market cooling, the housing component of CPI can be expected to lose its vigour, she said.

Excluding accommodation costs, the CPI rose 4.9 per cent year-on-year in October. The cost of transport and communication fell 0.2 per cent, reflecting lower petrol and COE prices.

Month-on-month, the CPI rose one per cent in October from September.

HSBC’s Ms Sofat said that inflation should fall to around 5 per cent in December and 3.5 per cent in January 2009.

The government said on Friday that inflation would moderate sharply to one to 2 per cent in 2009 - below a previous forecast of 2.5-3.5 per cent. Citigroup also cut its 2009 inflation forecast recently to 1.2 per cent, while Goldman Sachs now expects CPI inflation to average 2 per cent in 2009, down from its previous forecast of 3.4 per cent.

Source : Business Times - 25 Nov 2008

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Mindy Yong

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mindy@mindyyong.com