By BLOOMBERG
Weaker corporate balance sheets and currency market volatility pose risks to Singapore lenders, though the local banking system remains resilient, the Monetary Authority of Singapore said Friday.
Non-performing loans have increased, and moves in emerging Asian currencies “could exacerbate foreign currency mismatch risks for banks in Singapore,” the MAS said in its annual financial stability report.
“The turning credit cycle poses risks to Singapore’s banking system. Asset quality remains healthy, but there are signs of increased credit risks alongside weaknesses in corporate balance sheets,” the MAS said.
The non-performing loan ratio among Singapore banks rose to 1.5% in the third quarter of 2015, from 1.1% a year earlier, the central bank said. Bad loans have risen in the manufacturing sector, and banks with exposure to trade may see higher credit risks, the MAS said.
“It is important for our financial sector to continue to be vigilant to new or growing risks as highlighted in the report as external headwinds and contagion risks have intensified,” MAS deputy managing director Ong Chong Tee said. However, the report also demonstrates that Singapore’s banks, companies and households are “resilient to potential vulnerabilities and shocks,” he added.
Loan growth
Loan growth will remain weak “in the near future” amid a slowdown in China, regional currency weakness and the sharp drop in commodity prices, according to the MAS.
Total lending expanded by 5.4% in the third quarter from a year ago, driven by a slowdown in non-resident, non-bank loans. Non-bank loans to China were especially weak, the MAS said.
The banking system’s foreign currency loan-to-deposit ratio remained elevated at 126% in the third quarter, though it was down from 147% in May 2014, the MAS said.
The recent decline in the Singapore property market suggests a benign scenario, with property prices settling at sustainable levels over time, the MAS said. But the central bank will remain vigilant for signs of renewed “froth” in the property market on the back of still-elevated prices in certain market segments, it added.
At the same time, uncertainties in the financial markets and headwinds in the external outlook could add to risks of a sharper-than-warranted property market correction, with spill- overs to the banking sector and economy. The MAS said it will continue to monitor the property market carefully for risks to financial stability and take appropriate measures to maintain a stable and sustainable market.
— By Chanyaporn Chanjaroen & Christopher Langner
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