MAS sees 'highly uncertain' global outlook ahead amid Covid-19 crisis

THERE is "substantial uncertainty" over the global economic outlook amid the Covid-19 crisis, said Monetary Authority of Singapore's (MAS) managing director Ravi Menon on Thursday.

Speaking to the media at the release of MAS's annual report, he said: "We are now in the midst of an economic recession without modern precedent. The policy responses to the Covid-19 crisis have been equally unprecedented - in scale and in speed. There is substantial uncertainty over the global economic outlook, largely because there is substantial uncertainty over the trajectory of the Covid-19 pandemic."

Mr Menon said that recovery will be uneven across countries, across industries, and across time. "While a strong short-term growth bounce is plausible, the longer-term recovery is likely to be weak and gradual," he added.

MAS expects the global economy to grow by 3.5 per cent in the second half of this year, following an estimated contraction of 5.5 per cent in the first half. Here are key points from the annual report briefing:

MAS will return S$5.3 billion in net profit to the government

The investment return from the official foreign reserves was S$16.3 billion. This comprised investment gains of S$2.1 billion, and a positive currency translation effect of S$14.2 billion.

A NEWSLETTER FOR YOU

Friday, 8.30 am

SGSME

Get updates on Singapore's SME community, along with profiles, news and tips.

Sign Up

MAS made a net profit of S$10.6 billion in FY2019/20. This is after deducting S$3.5 billion of expenses from domestic money market and other operations, as well as contributing S$2.1 billion to the government's consolidated fund, as payment in lieu of corporate income tax.

This year, MAS will return half of its profits - that is, S$5.3 billion - to the government, with the remainder added to MAS's reserves.

12% of Singapore economy in eye of Covid-19 storm

About 12 per cent of the Singapore economy is at the "epicentre" of the Covid-19 crisis. Companies in sectors that are in the eye of the storm - specifically in construction, travel-related, and consumer-facing services - will take some time to recover, Mr Menon said.

"While we may see strong positive sequential growth in the second half of this year for those activities, it will not be sufficient to restore activity to pre-crisis levels."

No change to property-cooling measures

The property market has remained stable, thanks in part to the macroprudential measures in place and new temporary relief measures in response to Covid-19, said Mr Menon.

"At this point, there is no need to adjust the existing cooling measures."

Mr Menon said the stabilisation of the property market has "substantially reduced" its vulnerability to the Covid-19 shock.

"If property prices had been rising rapidly as we entered the Covid-19 crisis, we could have seen a sharp and painful correction."

The adjustment of the property market has been modest, with property prices moderating in an "orderly manner" in recent months.

MAS in "active discussions" with banks on capital management, including on dividends

MAS is now in "active discussions" with Singapore banks on their capital management ahead, which would include conversations around - though not limited to - restricting dividend payments.

Given the high uncertainty around the Covid-19 situation and as corporate defaults rise, "we should start early and not wait until the capital position starts looking weaker", said Mr Menon.

"It's better to do this from a position of strength," he added, but said that the central bank has not yet concluded on how it should ensure that Singapore banks are further buffeted in the area of capital management.

This comes as the large banks in Singapore with a significant retail presence have very strong and healthy capital buffers, MAS said. The central bank said it has, however, "reminded" lenders to be prudent on discretionary distributions, so as to preserve their ability to lend.

Banks resilient against stress test

MAS conducted a stress test against an adverse scenario that is consistent with what it might possibly see in the current Covid-19 crisis.

These stress scenarios assume that, over a two-year period:

"The stress test showed that our major banks and insurers remain resilient against this very adverse scenario," said Mr Menon.

This comes even as the Covid-19 shock has increased the risks to global financial stability. "Mounting corporate defaults will in turn strain banks' profitability and capital positions," he added.

MAS studying how to wean companies off relief measure, balancing fears of debt build-up

MAS is now engaging the banks, finance companies, and insurers to ease borrowers and policyholders into gradually resuming repayments. The central bank is looking to mitigate unintended "cliff" effects when relief measures expire towards the end of the year.

"These various relief measures have meaningfully helped to ease the cashflow pressures faced by individuals and SMEs. But deferred payments provide only temporary relief and come with longer-term costs."

MAS said the pace of resuming repayments needs to balance between the cashflow situation of the borrowers, against the accumulation of more debt that could raise the risk of default later.

Singapore sees "no significant" relocation of firms from Hong Kong

Singapore has not seen any significant relocation moves, or applications to do so, by Hong Kong-based companies, said MAS, with Mr Menon noting that all Asian financial centres are due to benefit from stronger growth prospects in this part of the world. "It's not a zero-sum game."