http://www.channelnewsasia.com/news/...al/886994.html
SINGAPORE: Singapore's regulation and supervision of its financial sector has been assessed as among the best in the world by the International Monetary Fund.
Banks in Singapore cleared IMF's stress tests under the IMF's financial stability assessment programme (FSAP) -- meaning they are resilient to adverse global economic scenarios.
However, the IMF also highlighted some risks, including rising credit growth.
"The FSAP is a rigorous and comprehensive programme. It provided us the opportunity to be independently benchmarked against international best practices and to evaluate policy actions to address any vulnerabilities in our financial system. The assessment is a testament to MAS' long tradition of prudent regulation and supervision," said Ravi Menon, managing director of MAS.
High leverage in the economy, property prices rising to above its 2008 peak -- these are risks identified by the IMF that could pose a challenge to Singapore's financial stability.
The IMF said while these risks appear manageable, the impact will become clearer only when the interest rate cycle turns.
As Singapore takes reference from global interest rates, a spike in US interest rates -- caused by tightening monetary policy -- could be bad news for loan holders.
Song Seng Wun, a regional economist with CIMB Research, said: "If rates were to turn, especially since the bulk of mortgages here are on floating rates -- 70 per cent of mortgages are on floating rates -- that increase in interest rates can very quickly be a burden on household and businesses that borrowed."
When asked to comment on some of the report's findings, a DBS spokesperson said: "A large proportion of our mortgages relate to owner occupied properties and our delinquency rates over the years have therefore been lower than market."
Darren Tan, chief financial officer at OCBC Bank, said: "The government has put in place a series of sound macro-prudential policies to curb any excesses in the housing market and promote financial prudence among borrowers. Our home loans portfolio remains healthy with a very low level of NPLs (non-performing loans)."
In 2010, the IMF decided that Singapore is one of 25 jurisdictions with financial sectors regarded as being systemically important. These jurisdictions undertake a financial stability assessment every five years.
In this year's assessment, the IMF made recommendations on areas like credit growth, crisis management, and banks' capital buffers.
While the IMF acknowledged that Singapore banks have a low percentage of non-performing loans, risks outside Singapore now account for a larger proportion of their balance sheets as the banks expand overseas.
Mark Young, head of Asia-Pacific financial institutions at Fitch Ratings, said: "The authorities and the MAS, they have obviously strong control over the Singapore environment. However, they don't have the same amount of control over, for example, what happens in Indonesia, Malaysia or China."
OCBC, Singapore second largest bank by assets, said their core overseas markets of Malaysia, Indonesia and Greater China enables them to continue to participate in their higher rates of growth. Net interest margins in these markets are also more attractive as compared to Singapore.
Mr Tan added: "By adopting a disciplined and prudent risk management approach, we have been able to grow our exposures in these markets while maintaining a high quality asset book with low incidence of non-performing loans.
"Nonetheless, we remain vigilant to potential shocks that could have an impact on our portfolios by taking mitigating actions proactively to address such risks."
Singapore's financial sector is significantly larger than its economy. Local and foreign banks hold assets worth S$2.1 trillion (US$1.7 trillion), six times of its GDP. The banks make up the bulk of Singapore's financial sector, which also include insurance companies, and the securities market.
MAS said in a statement that it welcomes the positive assessment of Singapore's financial system and will review the recommendations and take appropriate measures.
- CNA/ac
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