Nov 28, 2014

    S'pore banking sound but household debt a concern

    SINGAPORE'S financial markets and banking system have stayed resilient amid muted economic growth, but growing debt among companies and households, and elevated property prices, continue to warrant close monitoring.

    This encapsulates the Monetary Authority of Singapore's (MAS) view of the state of financial stability here.

    Corporate and household balance sheets are still healthy overall, the MAS said in its latest Financial Stability Review, which it published yesterday.

    But it reiterated a warning it has sounded before, that highly indebted households could be vulnerable should interest rates rise or the economy slow down.

    Private residential property prices have moderated, but remain at an elevated level, it said, adding that it will continue to monitor the market and take appropriate action when needed.

    Property developers have recently begun calling on the Government to review, and maybe ease, some of the cooling measures that have led to home sales and prices dropping this year.

    On Wednesday, the president of the Real Estate Developers' Association of Singapore, Chia Boon Kuah, warned that the property sector could be heading for major trouble unless the Government took "supportive measures".

    But the MAS made no indication that it was about to change its stance on the property curbs it has put in place.

    Mizuho Bank senior economist Vishnu Varathan said: "Property developers are not crying wolf.

    "Transactions have dropped quite a bit, but price adjustments have been quite modest.

    "I think the MAS sees that the price run-up was prolonged and acute, and it is quite happy for this modest pace of price reductions to continue."

    Meanwhile, local banks' asset quality is healthy, capital buffers are well above regulatory requirements and liquidity positions are sound, the MAS said.

    However, foreign currency exposures in the banking system have risen alongside the growth in cross-border lending, it noted. A tightening of global liquidity conditions could pose funding risks to the banks.

    OCBC economist Selena Ling said this would happen if foreign investors start pulling their money out of Asia and putting it back into developed markets.

    "In the last three to five years, foreign funds came to Asia for higher returns and foreign-exchange appreciation," she noted.

    "But now, with weakening Asian currencies and monetary easing in Japan and China that's causing rates to fall, that draw is no longer there."