Singapore's households, firms and banks financially resilient to shocks, but vigilance needed: MAS

Households, businesses and banks in Singapore are well-positioned to withstand financial shocks despite rising global stability risks, the Monetary Authority of Singapore (MAS) said in its annual financial stability review on Tuesday (Sept 22).

However, vigilance is needed due to the uncertain macroeconomic environment, MAS caveated.

The authority explained that fiscal pressures and financing in artificial intelligence (AI) have increased new debt in global bond markets, causing a rise in yields and servicing costs.

Meanwhile, the growth of AI is also reflected in stock prices of related companies - but this increases the risk of AI earning shortfalls and market correction.

Additionally, geopolitical tensions and supply disruptions have reignited inflationary pressures, contributing to tighter financial conditions, MAS said.

Most businesses resilient to higher rates, revenue shocks

For businesses, corporate credit quality has remained firm with companies experiencing lower borrowing costs and stable earnings. Debt maturity profiles have also been healthy, according to MAS.

Stress tests by the authority have determined that most businesses are resilient in the face of rising interest rates and revenue shocks, should there be a sharp pullback in AI-related investment due to ongoing energy supply limitations.

However, firms should manage debt obligations prudently and maintain adequate liquidity buffers against potential shocks, MAS cautioned.

Households capable of repaying debts

Households are also capable of repaying debts amid low and stable interest rates, while their financial assets are growing more than any liabilities they have.

This is supported by a stress tests, which have shown that a majority of those who borrow have safety nets that allow them to withstand abrupt changes in income or employment.

"Households should continue to manage their finances prudently and maintain sufficient buffers against potential stress," said MAS.

Likewise, banks are also financially healthy with sufficient capital and liquidity to withstand any unexpected losses.

Following stress tests by the MAS, banks and insurers were determined to have sufficient capital buffers, while investment funds have adequate liquid assets in the event of large-scale financial downturns.

"Financial institutions are expected to maintain prudent and sound risk management practices amid macroeconomic uncertainties," the authority said.

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khooyihang@asiaone.com