IN ITS review, the Monetary Authority of Singapore (MAS) said it expects revenues at local banks to decline and their non-performing loans (NPL) ratios to rise on the back the slowdown in the domestic economy and other markets where they have regional operations.

But MAS pointed to the fact that all local banks have strong Tier 1 capital adequacy ratios - a financial buffer to protect financial institutions against unexpected events - averaging 11.3 per cent.

The central bank's minimum ratio was 6 per cent for Tier 1 and the Bank of International Settlements' recommendation is just 4 per cent.

MAS also said that despite NPL ratios at an all-time low of 1.4 per cent - some 10 percentage points below levels seen during the Asian Financial Crisis - local banks are all well-capitalised, with loan deposit ratios averaging 86 per cent.

Similarly, the local insurance sector is also well-capitalised and remains sound amid the financial turmoil.

The capital adequacy ratio of life-insurers here average 240 per cent from the first to third quarters of 2008, while direct insurers' ratio averaged 289 per cent, both well above the minimum regulatory requirement of 100 per cent.

However, the insurance industry was also affected by the ongoing crisis generally due to concerns of AIG group's exposure to other credit derivatives, sell-offs which impacted its investment portfolios and negative sentiments over investment linked insurance products on the whole.

The economic downturn will also moderate demand for insurance polices but MAS said: 'The strong solvency position of insurers will enable them to weather these headwinds.'