MAS urges banks to guard against bad loans

The Sun (Malaysia) - - SUNBIZ -

SIN­GA­PORE: Sin­ga­pore’s cen­tral bank yes­ter­day urged the city-state’s banks to guard against a po­ten­tially pro­tracted eco­nomic slow­down amid a rise in bad loans, but said the fi­nan­cial sys­tem re­mains ca­pa­ble of with­stand­ing a se­vere stress event.

In its an­nual fi­nan­cial sta­bil­ity re­port, the Mon­e­tary Au­thor­ity of Sin­ga­pore (MAS) said its stress test found the bank­ing sys­tem to be re­silient even though banks’ pro­vi­sion­ing cover was down at 98% at the end of the third quar­ter.

“The bank­ing sys­tem’s over­all NPL ra­tio has in­creased over the past year along­side the weak­en­ing eco­nomic en­vi­ron­ment and emerg­ing as­set qual­ity risks,” the MAS said.

“Banks should con­tinue to main­tain sound credit un­der­writ­ing stan­dards, and set aside ad­e­quate pro­vi­sions to with­stand more NPLs should the eco­nomic slow­down be pro­tracted.”

The cen­tral bank’s re­port comes at a time when bad debt charges among Sin­ga­pore banks have jumped as credit woes deepen for the off­shore en­ergy ser­vices sec­tor, which has been hit hard by an al­most two-year rout in oil prices and a slow­ing econ­omy.

The bank­ing sys­tem’s over­all non-per­form­ing loan (NPL) ra­tio rose to 2.1% in the third quar­ter of 2016 from 1.5% a year ago, the MAS said. The ag­gre­gate NPL ra­tio of lo­cal bank­ing groups’ edged up to 1.4%, it added.

The bank­ing sys­tem’s ag­gre­gate ex­po­sure to the oil and gas, and re­lated sup­port­ing ser­vices sec­tor was less than 10% of to­tal ex­po­sures, the MAS said.

Re­sults of an in­dus­try­wide stress test showed banks would be able to ab­sorb losses un­der se­vere eco­nomic stresses, such as a pro­tracted slow­down in China’s econ­omy and steep falls in com­modi­ties and Asian cur­ren­cies, the cen­tral bank said.

“All banks would re­main sol­vent, with their cap­i­tal ad­e­quacy ra­tios (CARs) re­main­ing well above Basel reg­u­la­tory re­quire­ments un­der the stress sce­nar­ios,” the MAS said.

Cor­po­rate sec­tor lever­age re­mained broadly sta­ble, with the cor­po­rate debt to gross do­mes­tic prod­uct ra­tio hav­ing sta­bilised at around 150% of GDP since 2015, the cen­tral bank said.

Still, risks from height­ened cor­po­rate lever­age re­main amid de­clin­ing earn­ings and firms should take steps to delever­age where pos­si­ble and to re­fi­nance ex­ist­ing debt at favourable in­ter­est rates, the MAS added.

The cen­tral bank said house­holds con­tin­ued to delever­age af­ter a se­ries of macro­pru­den­tial mea­sures were in­tro­duced since 2009. House­hold debt growth mod­er­ated to 2.8% year-onyear in the third quar­ter, down from an av­er­age of 6.9% year-on-year over the last five years. – Reuters

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