SINGAPORE - Household balance sheets are resilient overall with ample financial buffer to weather economic headwinds, the Monetary Authority of Singapore said on Tuesday (Nov 29).
Macroprudential measures put in place since 2009, such as the total debt servicing ratio to prevent over-borrowing, have strengthened finances across Singaporean households, but there is still some way to go before the gains made are entrenched, the MAS said in its latest Financial Stability Review.
Households should stay financially prudent and review their investments carefully and diversify their portfolios, the regulator added.
"In particular, investors should be aware that rising vacancy rates, declining rentals and impending interest rate increases mean that they may not always be able to rely on rental income to service their investment property loans."
The warning comes amid prolonged weak growth and low interest rates, which the MAS noted have heightened global financial stability concerns.
Rising political risks could impede effective policymaking too, it added.
Lacklustre growth could weaken corporates and households' debt servicing abilities and in turn weigh on banks' asset quality, the regulator noted.
Indeed, bank profitability has already been squeezed by low interest margins, reducing banks' ability to build up buffers to protect against shocks.
Nonetheless, bank lending to the domestic economy continues to be healthy, the MAS said.
However there has been a slowdown in lending, particularly in cross-border loans, and emerging risks to asset quality, given the challenging economic backdrop.
While some industry sectors face headwinds, the overall corporate sector remains resilient, the MAS said.
"Most firms maintain healthy financial buffers that would enable them to weather potential challenges, as indicated by MAS' stress test results."
Companies should take steps to reduce balance sheet vulnerabilities, especially if they have significant leverage or foreign currency risks, the MAS added.
Firms should also maintain clear communication with investors by providing simple and succinct financial disclosures.