Domestic indicators of vulnerability for corporates, households and the financial sector have risen, mainly due to the “unwinding of pandemic-induced precautionary buffers,” according to MAS.
MAS is calling for heightened vigilance from both businesses and households and said households should exercise caution, especially when taking on large financial commitments, such as mortgage loans.
This is so they can have some buffer against the further tightening of financial conditions expected in the coming quarters.
MAS said companies should continue to maintain adequate buffers, including adequate liquidity and efficient management of their debt maturity.
GLOBAL RISKS INTENSIVE
The Annual Financial Stability Assessment presents MAS’s assessment of the resilience of Singapore’s financial system, based on its analysis of global and domestic risks and vulnerabilities.
As the world exits the COVID-19 pandemic and markets and the economy adjust, MAS said risks to the outlook for global financial stability have increased.
It identified a “worsening link between growth and inflation”, with growth expected to slow sharply over the coming year, while inflation is likely to remain significantly above many central banks’ targets.
The ongoing war between Russia and Ukraine continues to create uncertainty in the outlook for commodity prices and supply chains.
“The most immediate risk is potential dysfunction in key international finance markets and cascading liquidity pressures on non-bank financial institutions that could quickly spill over into banks and corporates,” said MAS.
“Tighter financial conditions and highly volatile markets can give rise to liquidity imbalances that central banks and tax authorities must adequately address to avoid a disorderly liquidation of assets.”
The debt sustainability of vulnerable households and firms could come under pressure, leading to a deterioration in banks’ asset quality, according to MAS. It also highlighted that rising global risk aversion could lead to a further pullback in funding for emerging markets.
But banks are in a better position to manage credit risk and absorb losses than they were during the global financial crisis of 2007 to 2008, it added.
HOUSEHOLD AND BUSINESS RESILIENT
Household vulnerabilities have risen slightly over the past year, with more property loans and short-term debt – supported by credit card lending – rising as discretionary spending increased with the reopening of the Singaporean economy.
MAS judged that households have “sufficient positive equity and liquidity” to mitigate downside risks in the event of declining asset values and rising debt burdens.
Most households should remain financially resilient, even with significant income losses and “full pass-through from sharp rate hikes”, while non-performing mortgage loans are expected to remain low.