MAS Says Singapore's Economy, Banks Are Robust; Highlights AML Stance, Debt Concerns

Tom Burroughes

24 July 2013

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 , 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 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.