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Singapore has a small domestic market and a limited industrial base. The country occupies 632.6 sq. km. (approximately 244 sq. miles) of land and has a population of approximately three million people. As a result of these natural constraints, the Singapore government views financial services as a high value-added component of the economy.
The banking system is designed with this perspective and with the goal of promoting the country as an international financial center in the regional and international markets. The nature of this international bias is clearly reflected in the three types of licenses issued to banks: full banking licenses, restricted banking licenses and offshore banking licenses. As of July 1997, there were 34 full license banks, 13 restricted license banks and 105 offshore license banks.' Singapore also established a Post Office Savings Bank (POSB) in 1972 to provide savings and checking account facilities to customers. Most funds from the POSB are channelled to the government, statutory authorities and governmentowned companies. POSB also provides housing loans. The interest on deposits from POSB is tax-exempt.
Banking Licenses
Full license banks are the only banks allowed to provide the full range of banking services to both domestic and foreign customers, with the permission of the Monetary Authority of Singapore (MAS). The international nature of Singapore's banking system is most obvious when looking at the make-up of the full license banks. Of the 35 full license banks, only 13 are Singapore incorporated banks. The rest are incorporated in 11 different countries, including 3 from the U.S.
To further enhance Singapore's role in international finance and to allow foreign banks into Singapore, restricted license banks and offshore license banks were introduced in 1970 and 1973, respectively. A restricted license allows a foreign bank to operate in Singapore but without creating competition for domestic deposits.
As a result, restricted license banks are not allowed to:
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