SINGAPORE'S financial resilience seemed to show signs of weakening on some fronts, but the central bank concluded after stress tests that the country's financial system remains healthy in the event of future shocks.
Against this backdrop, the Monetary Authority of Singapore (MAS) exhorted the banking, corporate and household sectors to guard against future risks to their financial health, it wrote in its latest Financial Stability Review (FSR) released on Friday morning.
Said Ong Chong Tee, deputy managing director of MAS: "The overall assessment in this year's FSR indicates that Singapore's banks, corporates and households are resilient to potential vulnerabilities and shocks. It is important for our financial sector to continue to be vigilant to new or growing risks as highlighted in the report as external headwinds and contagion risks have intensified."
Probability of US interest rates normalising, currency risks and financial volatility in China were some of the primary concerns listed by MAS.
For the banking sector, MAS wrote that the credit cycle has begun to turn, and loans growth has started to slow.
Non-resident non-bank loans growth slowed sharply, to a mere 2.5 per cent year-on-year (y-o-y) in Q3 2015 from 20.2 per cent in Q3 2014. Resident non-bank loan growth also declined to 5.6 per cent y-o-y from 9.5 per cent over the same period.
There are also signs that the asset quality of the banking sector has deteriorated, said MAS. Overall non-performing loans ratio has increased to 1.5 per cent in Q3 2015, from 1.1 per cent a year ago. Total provisioning coverage in Q3 2015 fell to 129 per cent from 157 per cent a year ago. Even so, asset quality still remained at a healthy level, said MAS.
In the corporate sector, profitability took a hit. Median return on assets of companies listed on the Singapore Exchange (SGX) fell to 3.5 per cent in the second quarter of this year, compared with 3.9 per cent in the same period last year.
However, MAS was satisfied that most corporates can weather interest rate and earnings shocks, with median current ratio and interest coverage ratio of SGX-listed companies remaining healthy. They were at 1.7 times and 3.9 times in Q2 2015 respectively.
But the exposure to volatility by smaller listed firms was of concern to MAS. It proposed that they could do more to hedge currency risks.
Households remained prudent as they scaled down exposure to risk, but pockets of vulnerability remained.
Overseas property transactions by Singapore households moderated in H1 2015 to their lowest level since 2012. The value of overseas property purchases by Singaporeans transacted by real estate agencies in Singapore declined to S$0.4 billion in H1 2015 from S$1.1 billion in H1 2014.
Growth in household debt slowed to 2.9 per cent y-o-y in Q3 2015, from an average of 8.7 per cent over the last five years.
Nevertheless, there is still a small group of borrowers with high debt-servicing burdens. MAS estimates that 5 to 10 per cent of households have debt-servicing ratios above 60 per cent. This percentage is expected to decline as households pay down their loans, but it will take time, noted MAS.
"Households should continue to exercise prudence, review their debt obligations and financial health, and build up financial buffers where appropriate," it said.