Singapore's financial stability sound but global risks have increased: MAS

WHILE Singapore's financial stability remains sound - whether in terms of corporate debt, the overall banking system or household borrowing - risks to global financial stability have increased amid tighter financial conditions and trade tensions, the Monetary Authority of Singapore (MAS) warned in its annual Financial Stability Review on Friday.

Rising interest rates and pressure on currencies could weaken the ability of sovereigns, corporates and households to service debt, particularly for those which have borrowed in foreign currencies, said the MAS.

This global situation poses risks for the various aspects of Singapore's otherwise stable financial picture. Corporate profitability and debt profiles remain sound, for example, but the MAS advised firms to stay cautious of potential external headwinds.

The corporate non-performing loan ratio decreased to 2.4 per cent in the third quarter, an improvement from 2.7 per cent a year ago. The MAS said that although its annual stress test showed that most listed firms would be able to withstand interest rate and earnings shocks, firms should still remain cautious as an expected tightening of financial conditions and escalation in trade tensions could weigh on profitability and debt servicing ability.

Similarly, while the domestic banking system remains resilient with strong capital and liquidity buffers well above regulatory requirements, banks should be watchful of foreign currency liquidity risks.

Credit quality in the overall banking system has improved, with the non-performing loan ratio having decreased to 1.9 per cent in the third quarter, from 2.1 per cent in the year-ago period.

Finally, household debt indicators are stable but could deteriorate if property price momentum and buying activity continue unabated.

While household debt growth had been in line with income growth over the past year, housing loans have risen in tandem with the pick-up in property demand. As at July 2018, the value of new housing loans was up 30 per cent year on year.

However, the MAS noted that there are early signs that recent property cooling measures have moderated the pace of price increases and transaction activity, which should contribute to stronger household balance sheets in the medium term. Households should keep an eye on their abilities to service debt, given headwinds of interest rate hikes, said the MAS.