SINGAPORE: In an assessment outlined in the annual Financial Stability Review 2023 shared by Singapore’s Monetary Authority (MAS) on Monday, Nov 27. MAS raised concerns about potential vulnerabilities from higher rates impacting global financial market stability arising from a combination of elevated global interest rates and existing vulnerabilities, Yahoo Finance reports.
The report highlights fragilities that surfaced during the COVID-19 pandemic, emphasising the risk of exposure if “major central banks maintain sufficiently restrictive monetary policy stances to achieve their inflation targets.” MAS points to the example of the surge of US bank failures in March, illustrating how pre-existing weaknesses can be laid bare in such conditions. Additionally, the report identifies emerging markets as particularly vulnerable to deepening public debt risks, as evidenced by several defaults over the past year. This, in turn, may trigger risk aversion and capital outflows.
Among the various factors contributing to financial instability, MAS underscores rising geopolitical tensions, the ongoing impact of climate change, wars and military conflicts, and a slowing of the Chinese economy.
Despite these challenges, Singapore is positioned relatively well to navigate this difficult environment. MAS notes that banks in the country maintain strong credit quality, and both corporates and households have weathered interest rate hikes without a significant increase in loan delinquency.
Turning to the property market, MAS predicts a relief in rental pressures in the residential sector due to a substantial supply of units being completed. The momentum in price rises has also slowed down, with demand expected to be tempered by high-interest rates and a moderation in wage growth. Foreign demand in Singapore’s private residential property market has decreased to around 4% of total transaction activity in 2023, down from over 6% in the first quarter following recent cooling measures.
In the financial sector, Singaporean banks identify monetary tightening as the most significant threat to the financial outlook, anticipating that higher rates may lead to increased credit risk. Geopolitical tensions, technology and cyber risks, and money laundering are also identified as key dangers, according to local banks.
A stress test conducted by the MAS on Singapore-listed companies indicates that most corporates remain resilient to joint shocks from lower demand and higher interest rates.
The central bank further underscores the “salient” risk of repricing overvalued commercial real estate assets globally, particularly posing a credit risk to banks.
As Singapore faces these challenges head-on, the emphasis remains on maintaining stability and proactively addressing potential risks in the evolving global financial landscape. /TISG