Financial Stability
Risks to the global financial stability outlook have intensified over the past year amid the cumulative tightening effects of rising interest rates and slowing economic growth. Since March 2023, bank stress events in the United States and Europe have fanned fears of a broader contagion in the global financial system. Swift and proactive interventions by the relevant authorities forestalled further losses in confidence and stabilised the broader global banking sector. Nevertheless, in the aftermath, banks are tightening lending standards even as credit demand is falling, which would compound the ongoing slowdown from monetary policy tightening. Going forward, these factors will continue to test the resilience of the global financial system.
The domestic financial system remains sound and resilient, with strong buffers to cushion adverse shocks and spillovers from the external environment. Specifically, banks in Singapore are well-capitalised with sound liquidity positions, underpinned by a stable and diversified funding base. Results from regular stress tests show that Singapore banks have adequate buffers to weather shocks from interest rate and other risks. Amid volatile international financial markets, MAS stands ready to provide liquidity through its suite of facilities to ensure that Singapore’s financial system remains stable and financial markets continue to function in an orderly manner.
Corporate and households in Singapore have stayed resilient despite tightening financing conditions and increases in debt servicing burden for borrowers. The recovery in corporate earnings on the back of good liquidity and maturity profiles, would provide some cushion should risks materialise. Meanwhile, the credit quality of the corporate sector is also healthy, with the overall corporate sector non-performing loans low at 2.3% as at Q1 2023, falling from 2.6% in Q1 2022.
The household sector balance sheets are assessed to have sufficient positive equity and liquidity to mitigate downside risks in the event of falling asset values and rising debt servicing costs. The credit quality of mortgages has stayed healthy, with the proportion of non-performing mortgages among loans extended by financial institutions remaining low at 0.2% as at Q1 2023.
MAS has updated the stress tests for corporates and households, incorporating conservative scenarios of significant earnings and income losses, and a further increase in interest rates, on top of the higher interest rates already seen in Q4 2022 and earlier this year. Under such scenarios, most corporates and households would still be able to service their debt, although a small segment who are more highly leveraged will be more constrained by higher interest rates. Accordingly, systemic implications for the banking system are also expected to be limited.
Measures to Ensure Prudent Borrowing in Residential Property Loans
29 September 2022
To ensure prudent borrowing, MAS raised the medium-term interest rate floor used to compute borrowers’ Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio to 4% (up from 3.5%) for residential property loans and 5% (up from 4.5%) for non-residential property loans.
This revision ensured that households continue to borrow prudently for their property purchases as interest rates were expected to rise further and to remain elevated over the medium term, compared to the period of exceptionally low rates over the past decade.
Measures for a Sustainable Property Market
26 April 2023
The Government announced increases in the Additional Buyer’s Stamp Duty (ABSD) rates to promote a sustainable property market. In Q1 2023, property prices showed renewed signs of acceleration amid rising interest from local and foreign investors. If left unchecked, prices could run ahead of economic fundamentals, with the risk of a sustained increase in prices relative to incomes.
The Government thus revised the ABSD rates higher to pre-emptively manage investment demand. This would complement the ongoing efforts to ramp up supply, to alleviate the tight housing market for both owner-occupation and rental.