Vulnerability of Singapore's Financial Sector to Recent Global Financial Stability Concerns
Prime Minister's OfficeSpeakers
Summary
This question concerns the vulnerability of Singapore’s financial sector amid global financial stability risks, as raised by Dr Tan Wu Meng. Senior Minister Tharman Shanmugaratnam stated that domestic funding markets remain functional with sufficient liquidity despite heightened international volatility and rising interest rates. He noted that asset quality remains resilient, with corporate non-performing loans decreasing to 2.5% and household mortgage non-performing loans staying low at 0.3%. The Minister highlighted that banks and insurers maintain strong capital buffers and undergo regular stress-testing to navigate potential downside risks. MAS continues to monitor the situation closely and work with the industry to maintain sound risk management and overall sector stability.
Transcript
43 Dr Tan Wu Meng asked the Prime Minister in light of the recent global financial stability concerns and the unusually challenging financial stability environment as articulated in the International Monetary Fund's October 2022 Financial Stability Report, what is the extent of vulnerability of Singapore's financial sector.
Mr Tharman Shanmugaratnam (for the Prime Minister): As the Member has highlighted, the IMF Global Financial Stability Report points to increased global financial stability risks arising from a disorderly tightening in financial conditions. The cost of borrowing for sovereigns, corporates and households has already increased significantly around the world.
MAS is closely monitoring the implications for Singapore. Two key aspects are important. First, the smooth functioning of domestic funding markets and financial institutions (FIs’) access to liquidity. Second, FIs’ asset quality, amid pressures on the debt servicing ability of corporates and households.
The key funding markets in Singapore are functioning normally, despite heightened volatility in international financial markets. Market participants are able to access funding as needed, though at higher interest rates. Banks continue to have sufficient liquidity to intermediate SGD and foreign currency loans. The fund management industry and domestic equity and derivatives markets are also operating well and in an orderly manner.
However, market participants should remain vigilant. The heightened market volatility in international markets is expected to persist and funding conditions could tighten further.
Turning to the asset quality of FIs, most corporates and households remain financially resilient even with the rise in interest rates. Based on available data, the proportion of non-performing loans (NPL) for the corporate sector has declined over the past year – from 3.1% in June 2021 to 2.5% in June 2022, even as the sector reported continued revenue growth. The household sector saw net wealth and liquidity increase through the pandemic, providing buffers against rising debt servicing cost. NPL for household mortgages also remains low at 0.3%.
At the same time, banks and insurers in Singapore have strong capital buffers against possible weakening in asset quality under stressful conditions.
Essentially, our financial sector has built up strong buffers to navigate the challenging global financial environment. Regular stress-testing is carried out to assess the sector’s resilience to potential downside risks. MAS remains vigilant and continues to work closely with the financial industry to ensure sound risk management.