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THE unexpected results of Brexit will weigh on both market confidence and on an already listless global recovery, said Lim Hng Kiang, deputy chairman of the Monetary Authority of Singapore (MAS), and the Minister for Trade and Industry on Tuesday.
"Risks remain, not least the prospect of political instability and the possibility of a rise in protectionist tendencies in the major economies," said Mr Lim, who was speaking at the annual Association of Banks in Singapore dinner.
Mr Lim said that stress tests on banks will become an increasingly important and integral part of risk management in the financial sector.
Stress tests conducted annually by MAS showed that Singapore's banking system remains resilient. Under extreme conditions, the rise in non-performing loans will remain below the peaks seen during the Asian Financial Crisis, while banks will still meet Basel regulatory requirements comfortably, said Mr Lim. Basel III rules dictate the basic capital and liquidity requirements for banks, so as to prevent a collapse.
Still, Mr Lim said, the banks must continue to watch risks arising from new and emerging trends such as persistently low interest rates, increasing connectedness between financial institutions and markets, as well as the growing use of technology.
Mr Lim said that the low-growth, low-inflation environment - which in all likelihood will continue for some time - suggests that monetary policy in many parts of the world will remain accommodative, especially in advanced economies where inflation has been below target for a number of years.
The heightened volatility in financial markets over the last few years - as seen in part by UK's decision to leave the European Union - underscores "the fragility of global financial markets", said Mr Lim.