Singapore Regulator Says Local Banks Can Cope With Interest-Rate Rise

   By Chun Han Wong 
 

SINGAPORE--Singapore's banking system has sufficient capital to cope with eventual rises in global interest rates, the city-state's central bank said Tuesday, in response to Moody's Investors Service's move to cast a negative outlook on the sector.

"Local banks continue to have strong financial positions by any serious assessment," the Monetary Authority of Singapore said in a statement. "As Moody's itself concluded, the local banks have enough capital to withstand even the severe stress test scenarios that it considered."

Moody's on Monday cut its outlook for Singapore's banks to "negative" from "stable," citing their rapid loan growth in recent years and rising property prices in the city-state--factors that have raised chances of declining credit quality and an increase in non-performing loans. The credit rater had given its outlook on Singapore banks at "stable" since 2010.

Its outlook downgrade came after the MAS in June tightened rules on property loans to discourage "imprudent" lending to individuals, in a move to mitigate risks to local homebuyers whose finances may be stretched when the global low-interest-rate environment comes to an end.

Singaporean regulators have also repeatedly taken steps since September 2009 to rein in real-estate prices that have been rising almost nonstop since the global financial crisis. Helped by low interest rates and abundant capital, home prices in the city-state have surged 61% since the second quarter of 2009, the most recent market trough.

The MAS said it "has been concerned that some borrowers are at risk of being overstretched, especially when interest rates rise. However, the local banks are not at risk."

While the MAS acknowledged that Singapore's banks "are not immune" to concerns over potential credit risks from rising interest rates, the central bank said local lenders "have adequate buffers in place to cope with the inevitable upturn in the interest rate cycle."

Write to Chun Han Wong at [e-mail]