Reply to Parliamentary question on impact of Euro zone crisis on Singapore’s banking sector and overall economy
Question No 224 Notice Paper No 221 of 2012 For Written Answer
Date: For Parliament Sitting on 9 July 2012
Name and Constituency of Member of Parliament Ms Low Yen Ling, MP for Chua Chu Kang GRC
To ask the Prime Minister (a) what is the level of exposure that Singapore has to European Union banks; (b) whether Singapore is prepared for banks deleveraging arising from the euro zone crisis; (c) what will the implications of deleveraging be on (i) our banks (ii) the availability of trade credit for our SMEs and companies and (iii) the domestic credit supply; (d) what kind of spillover effects and wider implications will the euro zone crisis have on our banking sector and overall economy; and (e) what measures does the Ministry have in place to mitigate its potential impact.
Response by Mr Tharman Shanmugaratnam, Deputy Prime Minister and Chairman, MAS
1 The direct impact of the Eurozone crisis on banks in Singapore is not likely to be significant.Loans and investments made by banks here in the Eurozone comprise around 5% of their total exposures. Banks in Singapore also have a low dependence on the Eurozone for funding, with less than 8% of their funding coming from the Eurozone.
2 Credit supply in Singapore has also not been significantly affected by Eurozone bank deleveraging. While some Eurozone banks have reduced lending to conserve capital and liquidity, others have been able to obtain increased funding from their head office to support their Asian businesses.
3 More importantly, other well-capitalised banks with strong liquidity positions, including Singapore and other Asian banks, have stepped in as some Eurozone banks pulled back from their traditional strongholds such as trade finance. For example, Asian banks’ market share of export bills for Singapore-originated trade activities rose from 48% in Q1 2011 to 59% in Q1 2012. A similar pattern can be observed for trust receipts, where Asian banks’ market shares increased from 56% to 63% over the same period. In fact, on aggregate, trade finance activity has continued to grow.
4 Nonetheless, should there be further, significant deterioration in the economies and financial markets of the Eurozone, the Singapore economy will not be insulated. The spillover effects will manifest largely through the trade and financial channels. The trade-related sectors, including manufacturing and transport, are likely to be the most adversely affected. There could be some pullback in credit amidst heightened risk aversion, and financing costs could rise. In the financial services sector, sentiment-driven activities such as stock broking and foreign exchange trading could also see a decline in transaction volumes.
5 The Eurozone situation remains very fluid and the Government is monitoring developments closely. The Government stands ready to act should conditions take a turn for the worse. We will ensure that sound businesses continue to have access to financing, and that households and workers receive appropriate assistance. The specific measures that we employ will depend on the how the economic situation unfolds, and will be calibrated to the nature and severity of the downturn.