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Local banks gain upper hand in CPF's new market

Singapore''s CPF Board will consider inviting international providers to enter the market. But no timetable has been set.

Local banks will have a head start over international providers in marketing their products to Singaporeans wanting to invest some of their pension fund savings in long-term fixed income products.

Five major local banks have been invited by the Central Provident Fund Board to consider offering long-term fixed deposit products following the government's announcement last month that CPF members will be allowed to invest with savings in their CPF special accounts from 1 January next year. The new market could be as big as S$12.3 billion ($7.04 billion), according to the government's estimates.

The five banks eligible to offer the products at this stage are Development Bank of Singapore (DBS), Keppel TatLee Bank, Overseas-Chinese Banking Corporation (OCBC), Overseas Union Bank (OUB) and United Overseas Bank (UOB). Some international banks operating in Singapore have not been invited by the CPF Board to offer similar products although they also meet the capital and credit ratings requirements.

Ronald Chong, CPF public affairs manager, explains international banks are not included because "it's harder for us to manage international banks". Chong says more invitations will be extended to other CPF-approved product providers but there is no timetable for such an offer yet.

The board expects the five invited banks will announce details of their products upon receiving the authority's approval. Chong says the board will absorb the cost of running the new scheme, providing back-office support at the "initial stage". Chong says it has not been decided how long that initial stage will be but it is expected the scheme will be administered by agent banks in the longer term.

Ian Simmonds, managing director of fund manager Principal Capital Management in Singapore, says the new scheme will have little impact on his company because it is not CPF-approved. But he expects providers given a head start to launch their products will have a definite advantage over late-comers.

Approved products under the new scheme are fixed deposits offered by one of the five local banks, government bonds or government-guaranteed bonds, semis, single premium insurance products such as endowment policies and deferred annuities and unit trusts.