1 In response to media queries, the MAS spokesperson said that Moody’s decision to revise the ratings outlook for the Singapore banks to negative has to be viewed against a few basic facts.
2 First, the Singapore banks have the highest average credit ratings amongst banking systems globally.1
3 Second, Moody’s has been revising downwards its ratings outlook over the past two years for a number of well-rated banking systems. This is understandable, in light of the impact that low global interest rates have had on credit growth and asset prices, and the potential risks when interest rates rise. The local banks are not immune to such concerns.
4 Third, the local banks continue to have strong financial positions by any serious assessment. As Moody’s itself concluded, the local banks have enough capital to withstand even the severe stress test scenarios that it considered. They maintain capital levels well above the ‘Basel requirements’ that are prescribed globally.
5 MAS has been concerned that some borrowers are at risk of being overstretched, especially when interest rates rise. However, the local banks are not at risk. They undertake regular stress tests on their own as well as coordinated by the MAS, and have adequate buffers in place to cope with the inevitable upturn in the interest rate cycle.
6 MAS has been monitoring these and other risks closely, as highlighted in our Financial Stability Reviews over the last few years. With regard to property market risks, MAS and other government agencies have taken pre-emptive measures. These include tightening loan-to-value ratios for housing loans, introducing stamp duties on property transactions, and shortening loan tenures. For the longer term, MAS has established a total debt servicing ratio framework. MAS has also been monitoring banks’ credit underwriting practices to ensure they remain prudent. These measures are ultimately in the interests of borrowers, besides the banks.