SINGAPORE: Singapore firms and households are well placed to weather shocks to their earnings, incomes and financing costs, while financial institutions such as banks have sufficient buffers should they come under stress.
This is based on stress tests done by the Monetary Authority of Singapore (MAS) as part of its annual financial stability review that assesses the resilience of Singapore’s financial system against global risks and domestic vulnerabilities.
Among households, only a small proportion of borrowers with limited savings buffers could face cash-flow constraints. However, some highly leveraged firms or those with thinner liquidity buffers could come under strain.
“In view of the uncertain macroeconomic outlook, firms and households should manage their finances prudently and maintain adequate liquidity buffers against potential stress,” said MAS on Sept 22.
The review comes as inflation has proven more sticky than expected, with the escalation of the Middle East conflict adding to energy price pressures.
A persistently higher cost of capital could test global financial resilience.
Strong artificial intelligence (AI) investment demand continues to strain supply capacity, and trade policy uncertainty increases business costs and inflationary pressures. These have led some advanced economies to pivot to monetary policy tightening by raising interest rates.
Higher global interest rates are likely to affect Asian economies unevenly, depending on their growth prospects, financing needs and external positions. Higher yields would also raise sovereign debt-servicing costs, with spillovers to firms and households, while weighing on asset valuations.
Economies benefiting from AI-related investment and exports are better placed to absorb higher borrowing costs, but are more exposed to a pullback in the AI cycle.
Those with weaker AI linkages and larger fiscal or current account deficits could be more affected by tighter global financial conditions, with portfolio outflows and currency depreciation increasing risks.
Firms showed resilience over the past year, buoyed by stable earnings and lower borrowing costs. Listed firms’ ability to repay debt has improved, as lower benchmark interest rates reduced interest expenses. — The Straits Times/ANN
