Financial Stability
Global financial vulnerabilities have increased, reflecting the build-up of corporate and sovereign debt, as well as stretched asset valuations. Against the backdrop of increased inflation and economic uncertainty arising from the Russia-Ukraine conflict, these vulnerabilities could interact with potential shocks and pose risks to financial stability.
In Singapore, corporates, households and banks have stayed resilient through the COVID-19 pandemic, supported by the recovery in economic activity and accommodative domestic financial conditions. Corporate vulnerabilities have eased with the improvement in earnings, which has led to stronger debt servicing ability. However, there remain some segments of the economy that have not fully recovered from the impact of the pandemic given lingering concerns such as the risks from travel. In the context of rising interest rates, businesses and households with already high leverage positions should exercise prudence in taking on new loan commitments.
The banking sector has maintained healthy asset quality alongside strong capital and liquidity buffers, while continuing to support the economy’s demand for credit. Industry stress test results also show that banks would have sufficient buffers to weather shocks from an adverse macroeconomic scenario.
Household balance sheets are relatively resilient. However, household leverage has remained elevated compared to pre-COVID-19, driven by the growth of new housing loans on the back of a buoyant property market since end-2019.
Nonetheless, continued prudence and vigilance are warranted to manage the impact of potential shocks, as the pandemic and geopolitical tensions continue to be a source of considerable uncertainty.
Measures to Cool the Property Market
15 December 2021
The Government announced a package of measures to cool the private residential and HDB resale markets. Following the measures, price growth and transaction activity moderated in Q1 2022, although vigilance will continue to be warranted to promote a sustainable property market.
The property market had been buoyant despite the economic impact from the COVID-19 pandemic. Prices rose for six consecutive quarters in the private residential property market between Q2 2020 and Q3 2021. If left unchecked, the momentum could run ahead of economic fundamentals and raise the risk of a destabilising correction later.
The Government thus tightened the Total Debt Servicing Ratio threshold for mortgage loans granted by financial institutions and raised the Additional Buyer’s Stamp Duty rates. The Government also tightened the Loan-to-Value limit for loans from HDB and announced an increase in public and private housing supply to cater to the demand.