Here’s why Singapore should be really worried about the steep rise in corporate debt

Corporate debt has risen by 90 percentage points since 2007.

Highly-leveraged households are a sore point for Singapore. However, a new report from BMI Research warns that the steep rise corporate debt, not elevated household leverage, is the real cause for concern in the local economy.

Citing estimates from Mckinsey & Co., BMI Research noted that Singapore's corporate debt as a proportion of GDP has risen by 90 percentage points since 2007, the fastest such run-up in the world.

"Compared to the household sector, corporate balance sheets are looking somewhat more tenuous. While it is likely that many of these firms are outward-looking given Singapore's status as the regional hub as well as its low financing rates, which limits risk to the local economy somewhat, such a rapid rise in debt is generally followed by a deterioration in asset quality, or at the very least a period of deleveraging that will weigh on real GDP growth," said the report.

BMI Research further argued that although household debt in proportion to GDP has risen over recent years, this poses limited material risks to the economy because the ratio is skewed by the country's extremely high homeownership rate.

"With total corporate debt in Singapore now standing at approximately 200% of GDP, the condition of corporate balance sheets is a trend that we will continue to monitor," said BMI.