RPT-UPDATE 1-Singapore PM says reviewing financial regulations

* Singapore reviewing financial sector regulations

* PM says unlikely a bank will fail in Singapore

* Says remains alert to systemic risk, difficult year
ahead
(Updates with details, quotes)

By Nopporn Wong-Anan

SINGAPORE, Feb 19 (Reuters) - Singapore is reviewing
financial sector regulations to reduce shocks to the system,
its Prime Minister Lee Hsien Loong said on Thursday.

He said it is unlikely a bank in Singapore will fail, but
the authorities would remain alert to any contagion or systemic
risk from a global financial crisis that has driven the
Southeast Asian city-state into its worst ever recession.

"We are reviewing our regulations," he said at a dinner to
mark Standard Chartered's 150th anniversary in Singapore. "Our
basic framework has worked well, but we are scrutinising the
system to minimise vulnerabilities."

Singapore on Tuesday reported its non-oil domestic exports
fell 35 percent in January from a year ago -- the worst
performance on record -- and the government expects the economy
to shrink by up to 5 percent this year.

"We expect our economy to have a very difficult year
ahead," Lee said. "We must remain vigilant."

Asian banks largely escaped the credit storm that badly
damaged Western banks, but are now threatened by rising bad
loans due to an economic downturn in Asia and lower fees from
crippled capital markets.

Singapore's biggest bank DBS Group reported last week a
bigger-than-expected 40 percent drop in quarterly profit, its
worst results in three years, while Oversea-Chinese Banking
Corp (OCBC) saw a 30 percent drop in profits this week as the
downturn boosted bad debt charges.

REFORM

Singapore's central bank is investigating allegations that
financial institutions mis-sold risky derivatives linked to
collapsed U.S. bank Lehman Brothers to retail investors.

Many Singapore and Hong Kong investors affected claim they
were told the investments were relatively safe and that they
had been asked to buy the products when they went to renew
their fixed deposits.

Financial institutions that sold the Lehman-linked
structured investments include DBS, Hong Leong Finance, UOB Kay
Hian, OCBC Securities, a unit of OCBC, and ABN AMRO, now part
of Royal Bank of Scotland.

"This structured products issue has been a learning
experience for financial institutions, investors and
regulators," Lee said.

"We need new rules on leveraging and gearing, including for
non-bank institutions, and tighter controls on banks'
proprietary operations. Regulators also need to develop
procedures to ensure that financial institutions manage
liquidity risk better."
(Additional reporting by Saeed Azhar; Editing by Neil
Chatterjee)