Zika outbreak: Early signs suggest small economic impact, says MAS chief

Monetary Authority of Singapore managing director Ravi Menon addresses the Foreign Correspondents Association at the Shangri-La Hotel on Sept 6.
Monetary Authority of Singapore managing director Ravi Menon addresses the Foreign Correspondents Association at the Shangri-La Hotel on Sept 6.ST PHOTO: MARK CHEONG

The Zika virus outbreak is unlikely to hurt Singapore's economy in a big way, according to Monetary Authority of Singapore managing director Ravi Menon.

Mr Menon told a lunch gathering yesterday: "It's too early to tell. You could say early indications are that there could be some small impact, but not likely significant for overall economic outcome.

"But, really, it's still early days."

The central banker was fielding questions at a lunch hosted by the Foreign Correspondents Association of Singapore.

He focused on the need for banks, insurers and asset managers here to discharge their duties properly to avoid a "crisis of trust".

"If they fail to do that and lose the trust, it's going to be very hard to bring that back again," he said.

"With any transaction between two parties, there will be grounds for misunderstanding and complaints but they need to be attended to fairly, expeditiously, and resolved as best as possible."

Lately, private banks here have come under flak for selling risky debt to investors after Bloomberg reported that bond issuers offer these banks rebates of as much as 1 per cent as an incentive to sell unrated securities.

Mr Menon said it is important that incentive structures do not get in the way of banks putting the interests of customers first, although an outright ban on rebates would be "rather draconian" as it could weaken the distribution channels for firms trying to raise funds.

But "minimally, some kind of disclosure will be important so that the buyer knows, as a result of his purchase, how the financial adviser or relationship manager is being rewarded".

Mr Menon added that the MAS' private banking industry group is "looking carefully at this".

He also noted that the financial services industry grew by an average of 8.6 per cent a year from 2011 to 2015, but growth is now closer to 2 per cent to 3 per cent, adding that the tapered growth was "not surprising at all, given the slowdown in the rest of the region".

"Naturally, because of the slowdown in trade in the region, especially in the slowdown in trade financing and trade related to China, that automatically has an impact on our offshore lending activities, which have come off slightly."

But Mr Menon added that Singapore offers other services besides the mainstay of bank lending, including foreign exchange trading and derivatives, as well as asset management and wealth management, "which are not growing as rapidly as before, but still growing at a healthy rate".

He also stressed that the banking system here is resilient, and said that the tweaks to the mortgage refinancing rules announced last week by the MAS are not to be seen as an easing of property curbs.

He said: "We're not looking at an easing of the measures any time soon. The adjustments... don't create new demand for housing loans. I can't see how this is in any way stimulatory."

A version of this article appeared in the print edition of The Straits Times on September 07, 2016, with the headline 'Early signs suggest small economic impact: MAS chief'. Print Edition | Subscribe