SINGAPORE Nov 28 Singapore banks could see loan
quality fall sharply should interest rates rise or if the
economy worsens as corporate debt levels are high by historical
standards, the city-state's central bank warned on Wednesday.
"Corporates are more leveraged today than they were a year
ago as low borrowing costs may have prompted some corporates to
borrow more than they would have otherwise," the Monetary
Authority of Singapore (MAS) said in its annual Financial
Large firms have issued twice the amount of debt in the
first nine months of this year compared with the same period
last year, while loans to small- and medium-sized enterprises
have continued to expand robustly, MAS added.
"If economic conditions worsen or interest rates rise from
current low levels, bank loan quality could deteriorate
substantially," the central bank said, although it added
companies in the city-state appear well-positioned to cover
their interest expenses.
Singapore interest rates are hovering near all-time lows
amid a surge in inflows resulting from quantitative easing by
Western central banks.
The yield on the 10-year government bond is around 1.36
percent while bank deposits earn as little as 0.1 percent per
annum, well below inflation that has averaged 4.7 percent so far
MAS had a more benign view on household debt levels, noting
Singapore's household net wealth stood at four times gross
domestic product, an increase of 7.3 percent from a year ago.
Total cash and deposits belonging to households have also
continued to exceed aggregate debt, it added.
MAS said government measures since 2009 to pre-empt the
formation of a bubble in Singapore's residential market has led
to a "noticeable slowdown in the pace of housing loan growth".
Property-related loans, at 46 percent of outstanding
Singapore dollar loans to non-bank customers, is below the
average of 48 percent in the past eight years, it added.
Nonetheless, the central bank said demand for private
residential property has remained resilient despite the
"The government will continue to monitor the market closely,
and will not hesitate to step in, if and when necessary, to
promote a stable and sustainable property market," it added.
NON-SINGAPORE DOLLAR LOANS
MAS's Financial Stability Review, which is published once a
year, is aimed at highlighting how developments in global
financial markets and Singapore could have an impact on the
soundness and stability of the city-state's financial system.
In its assessment of the global financial environment, the
Singapore central bank noted that investor sentiment has become
more volatile over the past year, which has in turn led to
volatile capital flows.
One likely scenario affecting Asia is that the continued
accommodative monetary policy in advanced countries will drive
more capital into the region, causing a further buildup of risks
in the form of excessive leverage and asset bubbles.
But MAS also noted that Singapore banking system's funding
profiles and asset quality were sound, and that local banking
groups DBS Group, Oversea-Chinese Banking Corp
and United Overseas Bank are well
The central bank reiterated a warning about the risks
arising from the growth of Singapore banks' foreign currency
loans which have once again outpaced the increase in
non-Singapore dollar denominated deposits.
"Non-Singapore dollar funding risk continues to warrant
close monitoring. The growth of non-Singapore dollar loans
outpaced the growth of non-Singapore dollar deposits in the past
year. Hence, the non-Singapore dollar LTD (loans-to-deposit)
ratio rose marginally from 124.0 percent in Q3 2011 to 124.9
percent in Q3 2012," the central bank said.
In its report last year, MAS had warned that banks in
Singapore were taking a risk by giving out U.S. dollar and other
foreign currency-denominated loans and relying on financial
markets rather than deposits to back these loans.
(Reporting by Kevin Lim; Editing by Jacqueline Wong)