reporter2
03-12-12, 15:54
http://www.straitstimes.com/archive/thursday/premium/money/story/mas-warns-against-excessive-borrowing-20121129
MAS warns against excessive borrowing
Businesses and households may find themselves over-extended if rates rise
Published on Nov 29, 2012
By Aaron Low
SINGAPORE'S corporate and household finances are in good shape, backed by healthy cash balances and rising wealth, said the central bank yesterday.
But there are worrying signs that businesses and households are borrowing more than they should, it said.
And they could face the prospect of becoming over-extended should interest rates rise if they are not careful, warned the Monetary Authority of Singapore (MAS). The comments were in the annual MAS financial stability review released yesterday.
For now, the financial sector remains healthy, with both the corporate sector and households reporting strong balance sheets, it said.
Household wealth, after taking into account liabilities such as loans, rose 7.3 per cent to $1.34 trillion from a year ago. About half of the wealth accumulated was property assets, valued at about $790 billion.
Likewise, the corporate sector stands on solid ground, even though profits have dipped.
Local banks are well funded and are grabbing opportunities left untouched by weakened European banks. The percentage of bad loans remained small at just 1.3 per cent in September, indicating that banks' asset quality is still sound, said the MAS.
But all this could change if economic conditions worsen or interest rates rise, it warned.
"Looking ahead, there is a material risk of bank loan quality deteriorating. Interest rates in Singapore have remained low for a prolonged period of time," it said.
The MAS noted that debt levels were rising in households and firms, and they could face problems repaying loans if rates rise.
"Corporates are more leveraged today than they were a year ago as low borrowing costs may have prompted some corporates to borrow more than they would have otherwise," it said.
For households, total cash and deposits still outstrip household debt, meaning they have enough in the bank to pay off their loans.
"Should interest rates rise in future or the unemployment rate increase, households that are highly leveraged and affected by retrenchments would come under pressure," it said. "Lower-income households, especially those with small financial buffers, could be adversely affected."
Bank of America Merrill Lynch economist Chua Hak Bin said the MAS is right to point out, as a precautionary measure, that households could be over-extending themselves. "But for now, we think that risk is still low, given that the US has said that interest rates will be low for the next two to three years," he said.
Mr Colin Tan, research head at real estate consultancy Chesterton Suntec International, believes that the Government will implement another round of measures to stop the excessive risk-taking by households.
"(The MAS) keeps warning about people over-extending but after a while it falls on deaf ears," he said. "It's better if it addresses the problem like creating alternatives for cash to be parked, such as inflation-linked bonds."
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MAS warns against excessive borrowing
Businesses and households may find themselves over-extended if rates rise
Published on Nov 29, 2012
By Aaron Low
SINGAPORE'S corporate and household finances are in good shape, backed by healthy cash balances and rising wealth, said the central bank yesterday.
But there are worrying signs that businesses and households are borrowing more than they should, it said.
And they could face the prospect of becoming over-extended should interest rates rise if they are not careful, warned the Monetary Authority of Singapore (MAS). The comments were in the annual MAS financial stability review released yesterday.
For now, the financial sector remains healthy, with both the corporate sector and households reporting strong balance sheets, it said.
Household wealth, after taking into account liabilities such as loans, rose 7.3 per cent to $1.34 trillion from a year ago. About half of the wealth accumulated was property assets, valued at about $790 billion.
Likewise, the corporate sector stands on solid ground, even though profits have dipped.
Local banks are well funded and are grabbing opportunities left untouched by weakened European banks. The percentage of bad loans remained small at just 1.3 per cent in September, indicating that banks' asset quality is still sound, said the MAS.
But all this could change if economic conditions worsen or interest rates rise, it warned.
"Looking ahead, there is a material risk of bank loan quality deteriorating. Interest rates in Singapore have remained low for a prolonged period of time," it said.
The MAS noted that debt levels were rising in households and firms, and they could face problems repaying loans if rates rise.
"Corporates are more leveraged today than they were a year ago as low borrowing costs may have prompted some corporates to borrow more than they would have otherwise," it said.
For households, total cash and deposits still outstrip household debt, meaning they have enough in the bank to pay off their loans.
"Should interest rates rise in future or the unemployment rate increase, households that are highly leveraged and affected by retrenchments would come under pressure," it said. "Lower-income households, especially those with small financial buffers, could be adversely affected."
Bank of America Merrill Lynch economist Chua Hak Bin said the MAS is right to point out, as a precautionary measure, that households could be over-extending themselves. "But for now, we think that risk is still low, given that the US has said that interest rates will be low for the next two to three years," he said.
Mr Colin Tan, research head at real estate consultancy Chesterton Suntec International, believes that the Government will implement another round of measures to stop the excessive risk-taking by households.
"(The MAS) keeps warning about people over-extending but after a while it falls on deaf ears," he said. "It's better if it addresses the problem like creating alternatives for cash to be parked, such as inflation-linked bonds."
[email protected]