MAS posts sharply lower profit due to currency effects

THE Monetary Authority of Singapore (MAS) posted a sharply lower net profit of S$281 million for the year ended March 31, 2015, due to currency effects.

The negative translation effect arose as the Singapore dollar strengthened against the euro and yen by 17.6 per cent and 6.7 per cent respectively, which more than offset translation gains as the Singapore dollar weakened by 8.3 per cent against the US dollar, MAS said in its annual report 2014/15 released on Tuesday.

It posted net profit of S$15.8 billion in 2013/14, aided by foreign-exchange gains.

MAS's total expenditure for FY2014/15 rose by 31.2 per cent to S$1.2 billion, stemming from the higher investment and interest expenses, it said.

On the investment performance of the official foreign reserves (OFR), MAS posted a S$1.2 billion gain. It was S$16.5 billion in FY2013/14.

Holding the SGD exchange rate constant to strip out currency translation effects, investment gains in FY2014/15 amounted to S$10.4 billion. But currency translation effects were -S$9.2 billion.

As in previous years, the gains were mainly from interest income and realised capital gains/losses from the sale of OFR assets, and have remained relatively stable for the last five financial years, it said.

Taking the investment gains/losses together with the currency translation effects, MAS's annual gains/losses from OFR over the last five financial years ranged from -S$10.4 billion to S$16.5 billion.

As at March 31, 2015, MAS held S$341 billion of OFR on its balance sheet. MAS invests the OFR conservatively in a diversified portfolio of cash, bonds and equities across advanced and emerging markets, with investment-grade bonds in the advanced economies comprising the largest allocation.

About three quarters of the OFR are denominated in the G4 currencies of US dollar, euro, sterling and yen, with no single currency allocation making up more than one-third of the composition.

MAS's financial results are reported in Singapore dollars.

The reported value of the OFR depends on the movements of the Singapore dollar vis-a-vis the foreign currencies in which the reserves are held, it said.

Such currency movements will result in translation effects in MAS's financial statements.

"These translation effects have no impact on the international purchasing power of the OFR, and hence do not affect MAS' ability to conduct exchange rate policy or provide a buffer in the event of a sharp deterioration in Singapore's balance of payments," MAS said. "Accordingly it would not be meaningful to hedge against the SGD to mitigate translation effects."