Slowing Global Market Threatens Singapore Banks; MAS Says

Monetary Authority of Singapore (MAS) has warned Singapore banks of risks to their profits and foreign-currency funding. The risks stem from the increased economy and a slowing global economy.

Singapore‘s banking system is healthy, and lenders continue to have “ample capital and liquidity buffers.” However, MAS said, low-interest rates and slowing credit growth could squeeze profit margins.

The regulator said this in its annual Financial Stability Review.

Moreover, it emphasized that banks must “be vigilant” to pressures in their foreign currency liquidity positions.

Singapore banks have been expanding loans in foreign currencies. This is due to the country’s status as the international financial hub, as local lenders diversify abroad.

It underscores their reliance on a stable dollar funding, making them vulnerable to possible market swings.

MAS also said that banks could struggle to convert their excess Singapore dollars into foreign currencies in case of severe dislocations in the swap market.

The regulator said this citing the liquidity stress test, International Monitory Fund (IMF) conducted.

MAS said IMF’s latest global financial stability report, shows the ratio of foreign-currency loans to deposits remains at an elevated level of 125.7% as of October.

What Do Regulators Think?

U.S dollar ratios for local banks have steadily remained below 100%. Foreign lenders in Singapore can rely on “relatively stable” funding from their headquarters.

The regulator said, “U.S. dollar funding risks bear continued close monitoring.”  It urged banks to continue strengthening their management of foreign-currency liquidity risk and develop contingency plans.

The MAS also said that bad-loan ratios have remained “broadly stable.”

This is despite an uptick in trade-related industries in the recent quarter.

“While the projected improvement in the manufacturing sector in 2020 should cap a further deterioration in non-performing loans, the trade-related sectors as a whole still bears closer monitoring,” it said.