SINGAPORE: The Monetary Authority of Singapore (MAS) made a net profit of S$19.2 billion for the year ended March, due to better investment returns and currency effects, according to its annual report for the 2018/19 financial year released on Thursday (Jun 27).
The figure, net of a S$3.9 billion contribution to the Consolidated Fund, is more than three times higher than last year’s net profit of S$5.3 billion even as higher investment and interest expenses increased total expenditure by 51 per cent to almost S$4 billion.
MAS made total gains of S$26.2 billion from the investments of its official foreign reserves. It was S$8.5 billion in FY2017/18.
The gains comprise an investment return of S$25.2 billion and positive currency translation effects of S$1 billion.
The latter was largely due to the depreciation of the Singdollar against the greenback, though that was offset by a stronger Singdollar against other major currencies such as the euro, MAS said.
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As in previous years, the investment return for FY2018/19 came mainly from interest income and realised capital gains. It was also similar to the S$22 billion achieved in the prior two financial years, despite volatility in global markets last year, added the central bank.
Speaking at the press conference for the central bank’s annual report, MAS managing director Ravi Menon said the investment return for FY2018/19 is “relatively high and reflects mainly the effects of an increasingly larger OFR base”.
“First, the income from investing a larger stock of assets would be higher. Second, realised gains would also be higher, as a larger OFR base means a higher turnover of securities for rebalancing and other portfolio transactions,” he said.
The MAS does not expect investment returns to be sustained at these high levels, he added, as the OFR base will now be smaller after the transfer of S$45 billion to the Government.
At the end of March 2019, MAS held S$400.7 billion of foreign reserves on its balance sheet. It said that the funds are invested in a well-diversified portfolio, comprising different asset classes across various geographies, for good long-term returns and resilience across market conditions.
About three-quarters of the portfolio are denominated in the US dollar, euro, yen and British pound, with the greenback forming the bulk. Investment-grade bonds in the advanced economies form the largest allocation in the portfolio, MAS said.
Its financial statements also said the board has approved a return of S$35.2 billion – S$19.2 billion net profit from FY2018/19 and S$16 billion from the General Reserve Fund – to the Singapore Government this year. This compared with last year’s approved returns of S$2.7 billion.
The return of profit to the Government from the General Reserve Fund and/or from the net profit of each financial year is determined by the MAS. Any remainder of the net profit is credited to the General Reserve Fund in accordance with Section 6 of the MAS Act, according to the financial statements.
“In approving the amount of profit to be returned, the board ensures that the authority’s capital and reserves remain adequate for the authority to carry out its principal objects and functions. The return of S$35.2 billion bolstered the Government’s Singapore dollar deposits held with MAS,” the central bank said.
Mr Menon added on Thursday that the MAS decided to return this amount to the Government as a smaller OFR base would mean that it needs less capital and general reserves as buffer.
This follows the May 8 announcement of a transfer of S$45.2 billion in excess foreign reserve assets to the Government for longer-term investment – a move it made after assessing that a lower than current foreign reserves level will still enable it to meet the objectives of supporting the conduct of monetary policy and fostering financial stability.
“Accordingly, the Government’s Singapore dollar deposits with MAS were reduced by this amount as consideration for the asset transfer,” MAS said.
This will be reflected in next year’s financial statements as the asset transfer took place after the end of FY2018/19, it added.