Singapore warns on risks, weaknesses to global financial stability

Deepening debt, elevated rates, geopolitical tensions and a slowing Chinese economy were all cited in Singapore’s annual Financial Stability Review

It also revealed the city state’s finance firms are now more concerned about risks stemming from potential money laundering and terrorism financing

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The skyline of Singapore’s financial district seen at night. The central bank said the city state remains well placed to cope with the challenging economic environment. Photo: AP

Published: 3:43pm, 27 Nov 2023Updated: 3:52pm, 27 Nov 2023

The combination of elevated global interest rates and pre-existing weaknesses remain a threat to world financial-market stability, Singapore’s central bank has warned.

Fragilities built up during the Covid-19 pandemic may be exposed if central banks maintain their restrictive monetary policy settings, as was seen in the spate of US bank failures in March, the Monetary Authority of Singapore said in its annual Financial Stability Review.

Emerging markets may also face deepening public debt risks as shown by a number of defaults over the past year, which may lead to risk aversion and outflows, the central bank said. Other risks to financial stability include rising geopolitical tensions, climate change, the Israel-Gaza conflict, Russia’s war on Ukraine, and a slowing Chinese economy, according to the report.

Workers are seen on a production line of a cooking oil plant in east China’s Shandong province on Sunday. Singapore’s central bank cited a slowing Chinese economy among the risks to financial stability. Photo: Xinhua

Still, Singapore remains well placed to cope with the challenging environment as banks’ credit quality has continued to be strong and most companies and households have weathered the pass-through of rising interest rates with no significant increase in loan delinquency, the central bank said.

On the closely-watched property front, the central bank said rental pressures in the residential market should “continue to abate” with a large supply of units being completed.

The momentum in price rises has also moderated, and demand is expected to be restrained by high interest rates and moderation in wage growth, according to the central bank. Foreign demand in Singapore’s private residential property market has fallen to about 4 per cent of total transaction activity in 2023, down from more than 6 per cent in the first quarter before the latest round of cooling measures were introduced, it said.

Meanwhile, the city state’s finance firms are now more concerned about risks stemming from potential money laundering and terrorism financing, in the wake of the island-wide raid earlier this year that captured more than US$2 billion in a crime ring.

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