MAS Releases Semi-Annual Publication of Financial Stability Review
Singapore, 1 December 2005...The Monetary Authority of Singapore (MAS) released its Financial Stability Review (FSR ) for December 2005.
2 Since the June 2005 FSR, global financial markets have remained resilient and have reacted well to a series of shocks, including the Katrina hurricane disaster in the US, terrorist bombings in London, and changes in the pegged exchange rate regimes in China and Malaysia. The G3 economies continued to expand, amid continuing monetary policy tightening in the US and sustained high energy and commodity prices. The East Asian economies, including Singapore, also experienced firm growth, with the balance sheets of both the banking and corporate sectors further strengthening over the past six months. Although household credit in several of the East Asian economies continued to grow, household indebtedness has remained broadly under control with authorities in some countries introducing measures to curb indebtedness and stem property price inflation.
3 The Singapore banking sector has remained sound, supported by healthy corporate and household sectors. Firms reported sustained profits and improved liquidity positions, while the household balance sheet strengthened further. In the banking sector, commercial bank lending accelerated in Q3 2005, reflecting strong non-bank lending activity in the Asian Dollar Market and overall interbank lending. The three local banking groups registered growth in profits, declining non-performing loan ratios and capital adequacy ratios that were above the regulatory requirement. The insurance sector saw improved performance on the back of growth in new life business premiums and higher operating profitability of general insurers.
4 Notwithstanding the overall positive assessment of Singapore's financial system, several possible downside risks remain. First, global inflation could accelerate much more than seen currently if oil prices were to rise further. This could in turn lead to tighter-than-expected monetary conditions and slower global growth. Second, the risk of a disorderly adjustment of the USD remains with the continued build up of large global imbalances. Third, there have been growing concerns of a Avian influenza pandemic, which would have severe economic and financial costs for the global economy.
5 Based on a scenario of rapidly rising interest rate environment leading to a sharp contraction in economic growth, a stress test of market risk was conducted on six major banks, including the three local banking groups. The stress test results showed that the banks would be resilient to the shocks assumed under the scenario. The estimated potential losses on the banks' market portfolios would be about half of their average pre-tax profits in the past five years.
1The FSR is aimed at providing a comprehensive assessment of Singapore's financial stability on a semi-annual basis, in line with the practice of major central banks. The inaugural issue was published in December 2004.