The Singapore economy may remain largely resilient but households, corporates and banks must be mindful of a rising level of financial risks, the central bank warns.
The Monetary Authority of Singapore (MAS) cited risks linked to sluggish economic conditions, rising interest rates and "foreign currency mismatches" in its latest financial stability review released yesterday.
It warned that "external headwinds and contagion risks have intensified", with regional economies hit by China's slowdown and slumping commodity prices, while the US Federal Reserve is set to raise interest rates soon.
Against this backdrop, Singa-pore's household debt conditions have remained largely stable, with growth in household debt slowing to 2.9 per cent year-on-year in the third quarter, down from the five-year average of 8.7 per cent.
MAS' stress tests also showed that most households can still service their mortgages - typically accounting for one-third of liabilities - even if mortgage rates surge from the current 2 per cent level to 5 per cent.
Singaporeans are also trimmimg their overseas property buys. Volumes recorded by local property agencies slid from $1.1 billion in the first half of last year to $400 million for the first half of this year.
But there areas of vulnerability. Some 5 to 10 per cent of households have debt servicing ratios above the stipulated maximum of 60 per cent. And while the number with high outstanding unsecured debts nearly halved from February to September this year, the number missing two months or more of their unsecured debt payments rose from 80,390 in September last year to 94,950 - or 5.8 per cent of the total - in September this year, MAS said.
It urged Singaporeans to be prudent with their spending and advised households to consider prepaying housing loans to reduce debt and interest costs if they are able to do so.
MoneySmart chief executive Vi-nod Nair said: "You should repay any outstanding credit card and personal loan debt first, as they accrue higher interest rates and tend to be lower in overall quantum."
Still, MAS' caution is necessary, given the high debt levels among households, SingCapital chief executive Alfred Chia said. "But the proportion is quite manageable. From my experience as a financial adviser, people are by and large more prudent financially now, and it shows that government measures such as the Total Debt Servicing Ratio are starting to work."
The TDSR requirement unveiled in 2013 is one of the "macro-prudential measures" rolled out in recent years to curb rising debt levels and cool property prices.
Overall property prices have moderated about 8 per cent in the past two years, but prices in the outside central region are still over 30 per cent above the pre-global financial crisis level, official data indicates.
"The asset prices are dropping, but it's a very soft landing. That's why the official rhetoric has been that the cooling measures will not be adjusted any time soon, and I think they will hang on to that for a while," OCBC economist Selena Ling said.
The MAS review also found the corporate and financial sectors to be largely resilient against economic and currency volatility.
Despite the pockets of risks, MAS stressed that the local banking system has ample liquidity and strong asset quality, adding its stress tests showed minimal systemic impact even if major counter-parties of banks fail.