Monetary Authority of Singapore: Asia companies can endure shocks

Menon: ‘Our tests also show that banks in Singapore can withstand a stress scenario of steep regional currency depreciation and sharp increases in interest rates.’ – Reuters

SINGAPORE: Tests done by Singapore’s central bank show Asian companies can withstand shocks far greater than the 1997 and 2008 financial crises, according to Ravi Menon, managing director of the Monetary Authority of Singapore (MAS).

Rising interest rates in the United States and other developed markets would add to the debt costs of Asian businesses and consumers, putting stress on over-extended borrowers if regional currencies weaken sharply as well, Menon said in a column published in Business Times newspaper.

But Asian companies and Singapore banks are in a better position to withstand that scenario, he said.

“The Monetary Authority of Singapore’s top-down reverse stress tests show that the Asian corporate sector would require shocks far greater than those seen in the 1997 Asian financial crisis or 2008 global crisis to come under significant stress,” Menon said.

“Our tests also show that banks in Singapore can withstand a stress scenario of steep regional currency depreciation and sharp increases in interest rates,” he said.

While policy “normalisation” may help to curb debt growth and reduce financial-stability risks, a rapid increase in rates “could result in currency volatility amidst high capital outflows,” he said.

The column was based on an abridged interview done by the Official Monetary and Financial Institutions Forum and due to be published in their monthly magazine, Business Times said.

Profits at Singapore’s three publicly traded banks have come under strain from a weakening domestic economy and from increased charges for loan losses tied to the oil and gas industry. Asian currencies have also come under pressure as investors raised bets of US rate increases this year, adding to debt costs.

China’s debt levels “remain substantial” and steps taken to curb “property market exuberance” and reducing corporate debt levels “must be more pronounced this year,” Menon said.