Singapore's financial system remains resilient

MAS advocates caution in its annual review given ongoing headwinds like a global slowdown and negative interest rates

While risks to global financial stability have increased, the financial system in Singapore remains robust, the Monetary Authority of Singapore (MAS) said in its annual review.

The MAS, Singapore’s financial overseer, conducts regular assessments of risks and vulnerabilities as a result of developments in Singapore and the global economy, and evaluates their implications on the strength and stability of Singapore’s financial system.

The latest analyses contained in the “Financial Stability Review” cite a trio of ongoing headwinds that could prove to be a source of fragility for financial systems, which the MAS is closely monitoring.

Firstly, the global economy is still experiencing a synchronized slowdown and the outlook is of continuing uncertainty reflecting ongoing trade and geopolitical tensions. The protracted US-China trade dispute is the most obvious example.  

Secondly, many major economies have faced persistently low or negative interest rates with financial conditions expected to remain accommodative. This in turn is driving rising indebtedness, particularly among nonfinancial corporates. In light of weak revenue growth prospects, further downsides to the current challenging macro-environment could undermine the sustainability of such debt.

The third factor cited revolves around financial institutions and investors who have taken on higher risks to achieve their target returns. The result has been an increase in capital inflows into emerging market economies, increasing the sensitivity of their domestic financing conditions to global shocks.

The MAS said it has calibrated and augmented its financial stability surveillance toolkit to react to these demands.

Turning to its own domestic market, the regulator noted that corporates, households and banks in Singapore remain resilient amid the challenging environment.

According to the MAS report, Singapore’s banking system is healthy with strong capital and liquidity positions and total credit growth has moderated to a more sustainable pace. While asset quality saw a slight deterioration in the recent quarter, banks continue to maintain ample capital buffers to cushion credit losses, the regulator said.

Overall liquidity positions remain strong but MAS warned that banks’ foreign currency liquidity could face heightened pressures under stressed conditions in international markets.

The financial positions of corporates in trade-related sectors weakened amid slowing earnings growth in a more challenging external environment, while those in domestic-oriented sectors have stayed relatively stable, MAS noted. Overall the nation’s corporate leverage remained stable, albeit at elevated levels.

For households, balance sheets have strengthened alongside an increase in net wealth, with liquid assets such as cash and deposits exceeding total liabilities. The MAS warned households that are overextended to exercise caution given the reservations surrounding the global economic outlook.

The regulator recommended that given the increased uncertainties and expectations for prolonged sluggishness in global growth, Singapore corporates, households and banks should remain vigilant.

It added that further uncertainty and weakness in the external environment could add pressure on corporates in the trade-related sectors and cause negative spillovers on the rest of the economy.

Date

4 Dec 2019

Channel

Capital Markets

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