MAS records $10b loss as Singapore dollar soars

SINGAPORE - Singapore's central bank posted a $10.61 billion net loss in its last fiscal year as the local dollar's gains against the yen and euro diminished the value of its foreign currency holdings.

The Monetary Authority of Singapore (MAS) also said the city-state's economy will "comfortably" meet the official growth forecast of 1-3 per cent for 2013, while inflation for the full year is expected to come in at 2-3 per cent, lower than the earlier estimate of 3-4 per cent.

MAS's loss for the financial year ended March 2013, its second in three years, was just slightly below the record $10.9 billion deficit incurred in financial year 2010/11 when the Singapore dollar also soared.

MAS made a net profit of $2.77 billion in FY2011/12.

"We made good investment returns, but when measured in Singapore dollars these gains were more than offset by the strength of the currency," managing director Ravi Menon said on Tuesday at a press briefing for the release of the central bank's annual report.

The Singapore dollar gained 13.8 per cent against the yen and 6.2 per cent against the euro in the 12 months to March, the MAS said. During the same period, the Singapore dollar rose 5.1 per cent versus the British pound and 1.3 per cent against the dollar.

The central bank had total assets of $340.4 billion as at end-March 2013, up from $319.2 billion at the end of the previous financial year.

Assets held by the MAS are mainly for managing the Singapore dollar's value against a basket of currencies and to defend the local unit when required.

Singapore cuts inflation outlook

The task of ensuring the country earns adequate returns on its massive foreign exchange reserves lies with GIC, formerly known as the Government of Singapore Investment Corp, which has an estimated US$300 billion.

On the Singapore economy, that MAS said that growth in the first half of 2013 was estimated at 2 per cent and should pick up during the latter part of the year.

The economy grew by just 1.3 per cent in 2012.

The report added that headline inflation would ease this year from last year's 4.6 per cent, but core inflation - which excludes the cost of cars and accommodation - could rise "moderately" to 2 per cent or slightly higher in the latter half of 2013 due to continuing tightness in the labour market.

MAS maintained its core inflation forecast for 2013 at 1.5 to 2.5 per cent.

The central bank, however, expressed concerns about rising household debt in the city-state and said an estimated 5-10 per cent of borrowers had "probably over-leveraged on their property purchases" based on their total debt service payment ratio of more than 60 per cent of monthly income.

"If mortgage rates were to rise by 3 percentage points, the proportion of borrowers at risk could reach 10-15 per cent,"Menon said.

Menon said household balance sheets in Singapore were resilient at an aggregate level, with cash and deposits exceeding debt, but the healthy balance sheets were not uniform across households.

Banks in Singapore now offer housing loans at around 1.1 to 1.2 per cent per annum, well below the 3.5 per cent level that financial institutions must use when calculating debt servicing ratios of potential borrowers based on the latest central bank requirements.

Current policy stance appropriate

Menon said MAS's current policy stance for modest appreciation of the Singapore dollar was appropriate for containing the re-emergence of strong cost pressures.

MAS, in its annual report, also touched on the need to ensure more Singaporeans get jobs in the financial sector, particularly in senior positions, addressing a sore point among locals who feel some foreign managers prefer to hire their own countrymen.

Singapore Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam, who is also MAS chairman, has discussed the issue with heads of banks based in the city-state, according to various local media reports.

Advertisements in local media taken up by a body backed by the city-state's manpower ministry earlier this year showed several financial firms had acknowledged "hot spots" within their organisations where "clusters of employees from the same country appeared to have developed over time".

"As Singapore's financial centre remains open to global talent, MAS is making concerted efforts to put in place initiatives to develop a strong core of Singaporean financial sector professionals," the central bank said in its report.

"MAS will work closely with financial institutions to nurture Singaporeans for leadership roles, through training and different jobs and country exposures."