19-11-2011, 08:11 AM
The Straits Times
Nov 19, 2011
Households, companies on strong footing: MAS
By Aaron Low
SINGAPORE's households and firms are in good shape for now, but several key risks remain that could threaten the stability of the financial system here, the central bank said in a report yesterday.
They include a trade slowdown with the West that could hit corporate profits and eventually wages, as well as a credit squeeze that could drive up borrowing rates for everything from homes and cars to new office equipment.
The good news is that the financial system is robust and resilient, with both households and companies on a strong financial footing, said the Monetary Authority of Singapore (MAS).
Households were at their wealthiest, with net wealth of some $1.247 trillion in September, up 7.8 per cent from the same month last year.
Property made up about half of the typical household's assets, with the rest in cash, Central Provident Fund balances, stocks and shares, as well as insurance policies.
Companies were also on a 'firm footing' as they had strong balance sheets and generated good profits, said MAS.
The corporate sector's 'return on assets' - one indicator of profitability - grew to 5.8 per cent over the past year.
And although firms were slightly more indebted, they seemed to have ample funding to cover interest rates on their loans, added the central bank.
The banking sector also remained resilient, with a strong base of capital to meet new regulatory standards set by the MAS.
Business was still brisk, with overall loan growth up a robust 12.8 per cent in the third quarter. Banks here also have only a negligible exposure to troubled peripheral European economies, said MAS.
But even as the indicators point to a financial system in the pink of health, it warned that the global economy is in its most fragile state since the last recession.
It flagged three major risks that could potentially destabilise the system here.
For one, the risk of a protracted slowdown in the global economy could have severe implications on corporate profits, job creation and income levels.
Should the economies in Europe and the United States go into a long economic funk, 'the resulting impact on corporate and household balance sheets could expose over-extended borrowers and lead to a deterioration in the quality of banks' loan portfolios', said MAS.
The MAS has said Singapore could grow below its long-term growth rate of between 3 and 5 per cent next year.
Likewise, the threat of contagion in the financial system spreading from Europe could lead to higher borrowing costs and curtail lending, affecting banks based here.
And while there is less froth in the property market due to the cooling measures implemented by the Government, MAS noted demand for new properties remains buoyant, and the activity in the market will need to be watched carefully.
Analysts were confident that both households and companies will be able to weather all but the worst of storms.
Mr Terence Wong, research co-head at DMG & Partners Securities, said the balance sheets of listed companies are at their best levels compared with the past.
'There is definitely less of a worry that the firms will not be able to get through the difficult spell ahead,' he said.
Mr Vasu Menon, OCBC Bank's head of content and research for wealth management, said the lessons from the property bubble in 1997 and the stock market crash in 2008 showed just how badly investors can get burnt.
'I think investors are a lot more careful, although many still think that interest rates will remain low for a long time. They may but if they shoot up, property investors may be hurt,' he said.
Nov 19, 2011
Households, companies on strong footing: MAS
By Aaron Low
SINGAPORE's households and firms are in good shape for now, but several key risks remain that could threaten the stability of the financial system here, the central bank said in a report yesterday.
They include a trade slowdown with the West that could hit corporate profits and eventually wages, as well as a credit squeeze that could drive up borrowing rates for everything from homes and cars to new office equipment.
The good news is that the financial system is robust and resilient, with both households and companies on a strong financial footing, said the Monetary Authority of Singapore (MAS).
Households were at their wealthiest, with net wealth of some $1.247 trillion in September, up 7.8 per cent from the same month last year.
Property made up about half of the typical household's assets, with the rest in cash, Central Provident Fund balances, stocks and shares, as well as insurance policies.
Companies were also on a 'firm footing' as they had strong balance sheets and generated good profits, said MAS.
The corporate sector's 'return on assets' - one indicator of profitability - grew to 5.8 per cent over the past year.
And although firms were slightly more indebted, they seemed to have ample funding to cover interest rates on their loans, added the central bank.
The banking sector also remained resilient, with a strong base of capital to meet new regulatory standards set by the MAS.
Business was still brisk, with overall loan growth up a robust 12.8 per cent in the third quarter. Banks here also have only a negligible exposure to troubled peripheral European economies, said MAS.
But even as the indicators point to a financial system in the pink of health, it warned that the global economy is in its most fragile state since the last recession.
It flagged three major risks that could potentially destabilise the system here.
For one, the risk of a protracted slowdown in the global economy could have severe implications on corporate profits, job creation and income levels.
Should the economies in Europe and the United States go into a long economic funk, 'the resulting impact on corporate and household balance sheets could expose over-extended borrowers and lead to a deterioration in the quality of banks' loan portfolios', said MAS.
The MAS has said Singapore could grow below its long-term growth rate of between 3 and 5 per cent next year.
Likewise, the threat of contagion in the financial system spreading from Europe could lead to higher borrowing costs and curtail lending, affecting banks based here.
And while there is less froth in the property market due to the cooling measures implemented by the Government, MAS noted demand for new properties remains buoyant, and the activity in the market will need to be watched carefully.
Analysts were confident that both households and companies will be able to weather all but the worst of storms.
Mr Terence Wong, research co-head at DMG & Partners Securities, said the balance sheets of listed companies are at their best levels compared with the past.
'There is definitely less of a worry that the firms will not be able to get through the difficult spell ahead,' he said.
Mr Vasu Menon, OCBC Bank's head of content and research for wealth management, said the lessons from the property bubble in 1997 and the stock market crash in 2008 showed just how badly investors can get burnt.
'I think investors are a lot more careful, although many still think that interest rates will remain low for a long time. They may but if they shoot up, property investors may be hurt,' he said.