An empirical analysis of three local banks' performance over a ten-year period.

Abstract

This paper seeks to investigate Singapore’s banking sector performance based on their abnormal returns during the global financial crisis, caused by the United States subprime mortgage crisis. Viewed as one of the most dramatic crisis to date, the 2008 crisis created an economic pandemic that affected the global economy, particularly financial institutions such as banks. The Singapore banking sector appeared relatively resilient to the crisis as it recovered fairly quickly compared to foreign counterparts.

Our study delves in-depth into the steps and policies taken to ensure this smooth and rapid recovery. We have also identified two aspects on banks that have been the focus of new regulations in order to stave off future crises – capital structure and Tier One capital ratio adequacy. Our first hypothesis is that a bank’s leverage has an impact on its abnormal performance. Our second hypothesis is that the higher the Tier One capital ratio, the higher the abnormal return of the bank. Even though these two factors have been proven to have an impact on foreign banks’ performance, our results show that in Singapore’s context, their predictive abilities are at best limited.