Financial Stability

Global financial stability risks have risen somewhat due to heightened trade and geopolitical uncertainty, and financial market volatility. Financial conditions have tightened in recent months as equity and bond markets whipsawed, while exchange rates reacted to broad-based US dollar fluctuations. Amid unprecedented policy uncertainty, tighter financial conditions exacerbate the effects on the real economy through higher financing costs, stiffer lending standards and reduced demand for credit as firms hold back on investments. 

Singapore’s financial system has remained resilient over the past year. The results of the Industry-Wide Stress Test (IWST) 2024 exercise affirm that banks have sufficient capital and liquidity buffers to withstand potential downside risks arising from severe macrofinancial stresses, including a protracted global recession and renewed inflationary pressures. Similarly, non-bank financial institutions (NBFIs) have adequate capital buffers for insurers and sufficient levels of liquid assets among investment funds to withstand stresses. 

Strong balance sheets of domestic corporates and households will continue to provide the necessary financial buffers against global macroeconomic uncertainty and market volatility. Singapore’s corporate debt-to-GDP ratio remained well below pre-COVID averages. Despite weaker corporate earnings and still-elevated borrowing costs in 2024 compared with the year before, firms continue to have healthy debt maturity profiles and adequate liquidity buffers. Meanwhile, household debt servicing ability is adequate alongside stable income growth. This reflects the prudent credit assessment practices by banks, complemented by existing macroprudential policies. 

MAS’ stress tests further show that most firms and households have sufficient capacity to weather shocks to incomes and financing costs, although a small proportion of highly leveraged corporates and households could face debt-servicing pressures, and should manage their finances prudently.