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GROWING leverage, still high property prices and rising cross-border bank exposure in Singapore warrant close monitoring, the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review on Thursday.
According to the report by the central bank's Macroeconomic Surveillance Department, corporate debt to gross domestic product (GDP) ratio in Singapore has trended upwards since the Global Financial Crisis, rising to 78 per cent in the second quarter of 2014, from 52 per cent in Q2 2008. Household debt-to-income ratio has also edged up to 2.3 times in 2013, from 1.9 times in 2008.
"An interest rate hike combined with an earnings shock could increase the number of financially distressed corporates and households," MAS said.
It noted that private residential property market prices in the city-state remain at an elevated level even though they have moderated following the series of property measures introduced since 2009. There has also been increased interest in foreign property purchases, which could expose investors to foreign exchange and interest rate risks, as well as other risks arising from unfamiliarity with overseas real estate markets.
Foreign currency exposures in the banking system have risen alongside the growth in cross-border lending. A tightening of global liquidity conditions could pose funding risks to the banks.
"In an uncertain economic climate, volatile external conditions could also lead to an unexpected and sharp deterioration in asset quality. MAS is monitoring the above risks closely and taking preemptive measures to address them," the central bank said.