Singapore central bank warns of credit risks for banking system as growth slows

Singapore's central bank warned on Friday that subdued regional economic growth is posing increased credit risks for the city state's banks, but it said the financial system remains resilient in the face of external headwinds.

Highlighting growing challenges facing global policymakers, the Monetary Authority of Singapore also cautioned that divergent monetary policies across the United States, Japan and Europe could stoke financial excesses as traders search for higher returns.

“Uncertainty over US monetary policy could trigger higher market volatility, while accommodative policies in the euro zone and Japan could fuel search for yield and financial excesses,” the MAS said in its annual Financial Stability Review.

It said sub-par growth in Asia could pressure profits and debt servicing capacity of businesses, with the turning credit cycle leaving banks exposed to risks of bad loans.

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“Asset quality remains healthy, but there are signs of increased credit risks.”

All the same, the domestic banking system remains resilient against a backdrop of an uncertain external environment, MAS said.