I recall a former Chairman of mine saying to me once “You know, every time I praise someone, the next thing I know is they've done something silly”. In this case actually it was me he was telling off - and yes, I deserved it! Fresh from the glow of having been commended for successfully completing a particularly complex piece of work, I let a stupid thing happen right under my nose a week later.
Not that I can imagine Singapore “basking” in the positive report I gave them two weeks ago - why should they care - (and okay, I was probably prodding Hong Kong as much as praising Singapore) but did they honestly think their declaration made last week, that Temasek was going to sell stakes in two Chinese banks and an Indonesian one, was going to go unnoticed? This was all an act of re-balancing their portfolio, they said. Hmm; really?
There is a growing body of opinion that says Chinese bank loans are actually not in as good a shape as they would like us to believe. And you can imagine why. The funds made available by the banks under the stimulus package of the last three years found their way largely into the rural areas and, it seems, local government pockets. (By the way, I am not suggesting here that the funds have gone into individual pockets; that, of course, remains to be seen!). Anyway, neither set of borrowers - rural communities/local governments - have a strong repayment record. So, while official statistics suggest that non-performing loans as a percentage of total loans has declined - which would happen naturally as new loans were granted, the records show that the absolute value of non- performing loans has also reduced. Well, when you think about it that's not unusual either, as they would naturally reduce as loan recoveries were made (maybe partly from the new money), plus some natural repayments. And the new loans have not yet been classified as bad.
On the surface then - all is well. But if the general opinions are correct, is the Singapore "“re-balancing” not just an attempt to get their money out of harms way before the nasty stuff hits the fan?
Ah no, they say. This is a general re-balancing, and just to prove it we are selling our stake in Bank Danamon in Indonesia. It is not just China. Okay, true, but I imagine that Bank Danamon could be an attractive purchase for someone wanting a foothold in Indonesia. The Singapore stake is a controlling one, which adds to the attraction. Thus two birds with one stone - get out of some potentially difficult investments in China if the NPLs get really bad, and get a decent return from the sale of an investment in a bank in Indonesia.
But here's a devious thought. The last I heard Singapore was very keen to become, like Hong Kong, a Renminbi clearing centre. It would enhance their standing as a Global Financial Centre and continue the perception that they are moving forwards while Hong Kong stagnates. But if you were China, and you thought someone was displaying a lack of confidence for the future of your country by selling stakes in your banks, would you give them what they wanted elsewhere? A bit too much like having your cake and eating it too!
I will need a lot more convincing that this sale of financial interests is genuinely how it is portrayed, and not just a ploy to get rid of some potentially damaging investments. If the real reason is the latter, then be brave and open about it - others might benefit from your wisdom? If, on the other hand it is a genuine re-balancing of the portfolio, then one message you are sending is a lack of confidence in the banking sector in certain countries - because you can always re-balance by acquiring additional, and different, assets. Either way, I am not sure that RMB clearing centres will be a feature of Singapore's product offering in the immediate future.
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