Last month, ratings agency Moody’s has downgraded Singapore banks due to rising household debt and rising property prices in Singapore. Shortly after, Singapore’s central bank, the Monetary Authority of Singapore (MAS) has defended that Singaporean banks, saying they are not at risk.
To weather financial stresses, MAS asserts that the three homegrown banks – DBS, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) – have the highest average credit ratings among banking systems worldwide and maintain capital levels well above that required under the Basel III framework.
In a report on Today paper, titled Singaporean households still in ‘good financial shape’, Acting Minister for Culture, Community and Youth, Mr. Lawrence Wong, said that “Singaporean households are in good financial shape and even those who may have overstretched themselves are unlikely to default on their loans should interest rates rise.”
He added that only 5 – 10% of borrowers were estimated to have a monthly debt servicing burden greater than 60% of their monthly income, with housing loans making up the bulk of those debts.
This then demonstrates that Singapore has the necessary frameworks in place to buffer potential stresses.
This is reassuring, as it sends a signal to entrepreneurs that Singapore’s banking system is still safe and that Singapore is a stable place to do business.”
This comment follows the new Debt Servicing Framework for Property Loans, which came into effect 29 June this year. Under the framework, a Total Debt Servicing Ratio (TDSR) applies for all property loans granted to individuals by financial institutions. The framework aims to encourage financial prudence among borrowers. Hence, banks are not allowed to extend loans that exceed 60% of an individual’s income.
On top of this, MAS has introduced limits for car loans as well as new regulations on unsecured credit and credit cards.
In a response to a recent parliamentary question, DPM and Finance Minister Tharman Shanmugaratnam said that Singapore’s banking system is sound and able to withstand adverse scenarios. He added that Singapore’s banks have passed stress tests, which are conducted on an annual basis.
“This then demonstrates that Singapore has the necessary frameworks in place to buffer potential stresses. This is reassuring, as it sends a signal to entrepreneurs that Singapore’s banking system is still safe and that Singapore is a stable place to do business. This strengthens the case for Singapore company registration and assures investors that Singapore is an ideal point from which to spring into the rest of Asia,” affirmed Mr. Satish Bakhda, Head of Operations at Rikvin.