01/2014 – S’pore is not facing a credit bubble: MAS


SINGAPORE: The Monetary Authority of Singapore (MAS) on Tuesday said Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis.

This was in response to media queries after a Forbes article claimed that Singapore is facing a dangerous credit bubble, fuelled by ultra-low interest rates, here

The article cites several risks including Singapore’s ratio of household debt to GDP, rising property prices and potential crisis in the banking system should non-performing loans increase when interest rates start to normalise.

The lengthy article dated January 13 was titled “Why Singapore’s Economy Is Heading For An Iceland-Style Meltdown.” It was written by a contributor who claims to be an economic analyst.

The MAS emphasised that serious observers and investors are not in doubt about Singapore’s financial health.

On the unusually low global interest rates, the MAS said it is clear that they have stimulated credit growth and an increase in property prices in recent years.

However, decisive steps have been taken to cool property demand and prevent excessive leverage.

The central bank also highlighted three facts which it said ‘stand out clearly’.

First, the property market is now stabilising and new housing loans have also been declining.

Private home prices in Singapore rose by one per cent in 2013, with a 0.8 per cent decline in the fourth quarter. This is after a three per cent price increase in 2012 and annual increases averaging 12 per cent per year during 2010-2011.

The MAS added that new housing loans fell by 35 per cent on year in Q3 2013.

Second, household balance sheets are on the whole strong and property asset values are significantly higher than the debts incurred.

The MAS explained that “the average loan-to-value ratio of outstanding housing loans stands at a healthy 47 per cent as of Q3 2013, implying a large buffer in asset values”.

Lastly, the MAS said Singapore’s financial system is robust.

It cited a recent assessment program by the International Monetary Fund that showed Singapore’s financial system would remain sound even under severe stress scenarios which include a sharp increase in interest rates – together – with a steep decline in property prices.

The MAS said Singapore’s banks are resilient, with strong financial and capital positions.

The MAS said Singapore’s triple-A rating from all the major rating agencies is not an aberration and that it attests to the country’s economic and financial strength, including its sizeable foreign reserves.

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