Businesses and households should be wary of over-extending themselves in the light of the faltering global economy and geopolitical tensions, the Monetary Authority of Singapore (MAS) warned.

It noted yesterday that persistently low or negative interest rates in many major economies have fuelled rising debt among firms not in the financial sector.

Financial institutions and investors around the world are also taking on higher risks by putting more money into emerging markets, where they are more susceptible to global shocks.

Stress tests that the MAS have run showed that companies, banks and households here are resilient enough to withstand shocks, but need to be on their guard.

"The prolonged period of depressed external demand... has caused some weakening in the financial positions of firms in the trade-related sector," the MAS said in its latest annual Financial Stability Review.

It added that companies focused on the local economy remained relatively healthy, depending on their sectors.

"For households, balance sheets have strengthened alongside an increase in net wealth, with liquid assets such as cash and deposits exceeding total liabilities."

Moves taken to tighten unsecured credit rules since 2014 have paid off, the regulator added.

Households that are already over-extended should be cautious in taking up new debt, the MAS said.

"While the July 2018 cooling measures have helped to bring the property market closer to economic fundamentals, prospective home buyers should be mindful of their ability to service their mortgages amid uncertainty in the economic outlook," it said.

The regulator also noted that Singapore's banking system is healthy with strong capital and liquidity positions. Total credit growth has moderated to a more sustainable pace, it said.

But it noted that prolonged uncertainties in the global economy could present challenges for lenders, as interest rates are likely to stay lower for longer.

Banks could face some pressures on net interest margins given the persistent low interest rate environment amid a slower pace of credit expansion, it said.

Aw Cheng Wei