Singapore’s
financial sector is in robust shape and not a soft touch for purveyors of shady
money, the head of the city-state’s monetary authority said in a speech that
also raised concerns about rising household debt.

Ravi Menon, managing director of the Monetary Authority of Singapore, said
total assets managed by Singapore-based fund managers reached a record of
S$1.63 trillion (around $1.29 billion), a 22 per cent gain from a year before,
and about 80 per cent of the money came from outside Singapore. Menon outlined his
organisation’s annual report yesterday.

Speaking at a time when the jurisdiction has been sometimes seen as
potentially overtaking Switzerland
as an offshore centre due to pressure on the Alpine state’s bank secrecy, Menon’s
speech included a reminder that Singapore
has a tough approach to tax evasion.

“Singapore takes
seriously the integrity of its financial centre and is fully committed to
international efforts to combat money laundering and tax evasion,” according to
the text of his speech. He pointed out that since 1 July, laundering proceeds
of tax evasion and tax fraud is now a crime in Singapore. Financial Institutions
are required to conduct customer due diligence to deter and detect proceeds
from serious foreign tax offences, even if they are not offences in Singapore.

Over
the last three years, MAS conducted total of 108 AML and counter-terrorism finance
inspections at banks, insurance companies, money changers, remittance agents,
and licensed intermediaries.

Menon’s
comments come in the same month that Singapore’s prime minister Lee
Hsien Loong said the city-state is unlikely to overtake the Alpine nation soon
but should play to its strengths.

State of economy

On
general economic matters, Menon said in the absence of negative shocks, Singapore’s
gross domestic product is expected to be stronger in 2013 than 2012 – hitting the
forecast of 1-3 per cent. Growth was estimated at 2 per cent at the half-year
point and should accelerate into the second half, he said. On consumer prices,
the inflation forecast for 2013 (CPI-All Items) has been revised down to 2-3 per
cent from 3-4 per cent.

As
far as the MAS’s own finances were concerned, it logged an overall loss of
S$10.6 billion after taking into account translation effects from an
appreciating Singapore
dollar.

Menon
said the banking system in Singapore
remains sound but raised concerns about rising household debt.

“The
combination of low interest rates, growing leverage, and surging property
prices poses significant risks to financial stability – hence MAS’ concern. Singapore’s
credit-to-GDP ratio has risen from 200 per cent to 270 per cent over last three
years.  MAS has been monitoring this very closely but credit growth, in
and of itself, is not a cause for major concern," he said.

Despite some caveats, the strong flow of domestic credit to the property
sector is a worry, Menon said, noting that household loans by banks rose by 18
per cent a year over the past three years.

“Our
local banks have strong financial positions. They are well-capitalised
with prudent provisions against loss,” Menon said, but noted that many
households could have over-extended themselves.

“So, when interest rates rise, long before any bank gets into trouble, some
households will. Banks must therefore practice responsible lending, and
consider the ability of borrowers to service their debt in a sustainable
manner. This is the main reason why MAS introduced the Total Debt Servicing
Ratio framework.  During our inspections, we picked up some worrying
practices,” he said.

The MAS has introduced tighter loan-to-value ratios, a requirement for
higher down-payments and other controls to curb risk.