Surging Travel and Fixed Deposit Demand - Singapore's Foreign Currency Deposits Break the SGD 1 Trillion Mark

The Singapore banking system has witnessed a historic breakthrough as foreign currency deposits have exceeded the SGD 1 trillion threshold for the first time. This remarkable milestone is attributed to the robust Singapore dollar exchange rate and the influx of safe-haven funds, coupled with Singaporean businesses intensifying their cross-border and overseas operations.

Data from the Monetary Authority of Singapore's website indicates that as of the end of March, foreign currency deposits in Singapore have surged by 7.3% compared to a year ago, outpacing the 2.9% growth of Singapore dollar deposits. This includes foreign currency deposits held by the government, non-bank financial institutions, corporations, and individuals.

Tan Jiancheng, an investment analyst at Phillip Securities Research, shared with Lianhe Zaobao that the U.S. banking crisis last year has propelled more overseas funds into Singapore as international investors regard the city-state as a safe haven.

Analysis: Depositors Convert to Foreign Currencies for Higher Fixed Deposit Interest Rates

Bloomberg Industry Research analyst Guo Shuning suggests that the strength of the Singapore dollar may have encouraged depositors to convert to foreign currencies and place their funds in fixed deposits with higher interest rates.

Since the Monetary Authority of Singapore's data release in July 2021, foreign currency deposits have grown from SGD 783.2 billion at the end of July 2021 to SGD 1.0082 trillion at the end of March this year, an increase of 28.7%. Notably, the growth rate of foreign currency deposits in 2022 was significant at 13.2%, while the pace slowed to 4.2% in 2023.

Travel Demand Also Drives Consumers to Exchange Foreign Currencies

Banks interviewed remarked that there has been a robust increase in both corporate and personal foreign currency deposits. The growth in cross-border business activities has prompted corporations to hold more foreign currencies, while strong travel demand and a robust Singapore dollar have driven consumers to exchange foreign currencies.

Tesy Mathew, Group Head of Global Transaction Services Cash Product Management at DBS Bank, revealed to Lianhe Zaobao that the bank's corporate foreign exchange deposits have achieved double-digit growth. "In addition to the continuous increase in direct overseas investment inflows, more global companies are setting up regional treasury centers in Singapore to manage cash and treasury operations. This is mainly due to our country's robust economy, political stability, and business-friendly policies."

Mathew also noted that Singapore's small and medium-sized enterprises are increasingly engaged in cross-border business and expanding into overseas markets, increasing foreign exchange deposits used to maintain operational funds.

Mathew observed that the U.S. dollar continues to dominate in foreign currency deposits, while the Chinese yuan, euro, and British pound deposits have also risen. The Chinese yuan, in particular, has grown as a trade and payment currency, resulting in many companies holding yuan deposits, which have doubled in the past two years.

Chen Guangyu, Head of Group Personal Financial Services at UOB, disclosed that the bank's retail foreign exchange deposits grew by a high single-digit percentage in the first quarter. From December to March 2024, U.S. dollar fixed deposits and savings account balances increased by nearly 10%, with the Japanese yen deposits jumping over 20%. This could be due to the depreciation of the yen over the past few months, coupled with an increase in travel between Singapore and Japan in the first quarter. According to data from the Japan National Tourism Organization, the number of tourists from Singapore to Japan in January and February this year increased by nearly a third compared to the same period last year.

Data from UOB Mighty FX shows that during this period, the amount of Singapore dollars exchanged for U.S. dollars and Japanese yen accounted for nearly 70% of the total exchange amount. Particularly from January to March this year, the amount of Singapore dollars exchanged for Japanese yen more than doubled compared to the same period last year.

Over the past year, the Singapore dollar exchange rate against the Japanese yen has risen by 13.5%, standing above 115, while the Singapore dollar against the U.S. dollar has slipped by 1.1%, hovering around 1 U.S. dollar to 1.35 Singapore dollars.

A spokesperson for OCBC Bank stated that over the past year, both corporate and retail clients have increased their foreign currency fixed deposits, especially in U.S. dollars. Consumer U.S. dollar fixed deposits are up 20% from a year ago and nearly double compared to 2022. Consumer U.S. dollar fixed deposits account for more than half of the overall U.S. dollar fixed deposits.

The spokesperson also mentioned that U.S. dollar interest rates have remained high, providing higher returns for both corporate and retail clients, especially for retail clients who may view U.S. dollar deposits as a means to hedge against inflation.

Lan Weijie, Head of Deposits and Secured Lending at DBS Bank Singapore revealed that the amount of foreign currency exchanged through the bank's multi-currency accounts in the first quarter of this year has doubled compared to the pre-pandemic period (2019), with the volume of yen exchanges setting a new record. In terms of fixed deposits, besides the U.S. dollar, the Australian dollar, British pound, and Hong Kong dollar are also popular, possibly due to attractive interest rates and the strength of the Singapore dollar.

CIMB Bank Singapore reported that consumer foreign currency deposits increased by nearly 10% from December last year to March this year, while corporate U.S. dollar fixed deposits increased by more than 10% from the end of last year to April. Chen Weichuan, Head of Commercial Banking at CIMB Singapore, stated that fixed deposits offer a guaranteed investment return unaffected by market fluctuations.

Chen Guangyu cautions that foreign currency fixed deposits are exposed to exchange rate fluctuations, so customers may receive a lower equivalent amount in Singapore dollars at maturity than the original investment. If customers choose to withdraw funds before the maturity of the foreign currency fixed deposit, they must pay a replacement cost.