Singapore’s banking system fraught with intensifying risks: MAS

Bad loans are on the rise.

Back-to-back risks are cropping up around Singapore’s financial system, according to the latest financial stability report by the Monetary Authority of Singapore.

Although asset quality remains healthy, there are now signs of increased credit risks such as a slight uptick in nonperforming and special mention loans.

At the same time, risks from foreign currency mismatches have risen despite lower foreign currency funding pressures. 

“The credit cycle has begun to turn, with external and domestic loan growth moderating alongside slowing economic growth. This poses risks to Singapore’s banking system,” the MAS said.

Despite higher risks, the domestic banking system remains resilient amid an uncertain external environment, as banks have strong capital and liquidity buffers to withstand severe shocks.

“Continued vigilance is warranted. Banks should continue to maintain prudent credit underwriting standards, monitor portfolio vulnerabilities and ensure adequate provisioning. Banks should also manage their foreign currency risks prudently and develop liquidity contingency plans,” said the MAS. 

Asset quality remains healthy, but there are signs of increased credit risks, e.g. a slight uptick in nonperforming and special mention loans. Foreign currency funding pressures have eased with slowing regional loan growth, but risks from foreign currency mismatches have risen.