Singapore households should remain prudent amid global risks: MAS
Households have strong financial buffers but should be careful given the heightened geopolitical uncertainties and trade tensions, MAS said in its annual financial stability review.
The logo of the Monetary Authority of Singapore (MAS) as pictured at its building on Feb 21, 2013. (File photo: REUTERS/Edgar Su)
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SINGAPORE: While mortgage rates are down and incomes are up, households in Singapore should continue to be prudent amid heightened geopolitical uncertainties and trade tensions, the Monetary Authority of Singapore (MAS) said on Wednesday (Nov 27).
Financial assets like cash and stocks grew at a faster pace than an increase in household debt, the regulator and central bank said in its annual financial stability review.
Around three-quarters of total household debt comprises housing loans which are backed by property collateral.
Outstanding housing loans increased by 1.6 per cent in the third quarter of the year compared with the same period a year ago. New loans were largely offset by borrowers paying down existing mortgages when interest rates were higher.
Households’ ability to service their debt remains healthy, said MAS.
“A stress test on households, assuming an immediate increase in mortgage rates to 5.5 per cent, together with a simultaneous income loss of 10 per cent, affirms that debt servicing capacity is sufficient to survive adverse shocks,” the authority said.
In such a scenario, more than 90 per cent of households would be able to continue paying their mortgages, while a small segment of highly leveraged borrowers would be at risk. But these borrowers may have cash buffers and Central Provident Fund savings that were excluded from simulations.
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LIQUIDITY RISK FOR HOUSEHOLDS
In assessing households’ risk of not having enough cash in the short term, MAS looked at the ratio of personal loans to personal disposable income.
That has been declining since the fourth quarter of 2021 and has continued to fall.
Personal loans increased by 5.1 per cent in the third quarter of 2024, but the growth rate remains below the 15-year historical average of 5.7 per cent.
“Almost all borrowers have been able to service their credit/charge card debt, despite the rising balances which reflected robust growth in resident outbound travel and domestic retail sales,” the report said.
Credit card delinquency rates remained low at less than 1 per cent. MAS also looked at aggregate household net wealth, which increased by 9 per cent in the third quarter.
PRIVATE RESIDENTIAL MARKET HAS STABILISED
The private housing market has been stabilising, so asset price volatility risk should be contained, said MAS.
Prices in the private residential market declined in the third quarter of 2024 for the first time since the second quarter of last year. In the first two quarters of this year, price increases had slowed.
In aggregate, prices have increased 1.6 per cent in the first nine months of the year, slower than the 3.9 per cent jump in the same period last year.
Transaction volumes were similar to last year, or around 12 per cent below 2022 levels. New sales fell by about 43 per cent in the first three quarters of 2024, but that was partially offset by a 22 per cent increase in resale transactions.
Rent in the private market peaked in the third quarter of last year after rising for three years, and have since fallen across all market segments.
After construction resumed after COVID-19, supply increased and the rental market eased, with quarterly private housing completions averaging 3,600 units since the first three months of 2023.
“Looking ahead, the rental market is expected to be broadly stable, with a steady supply of units coming on stream and demand pressures easing in the coming quarters,” MAS said.
The inventory of unsold units in the pipeline has been replenished and is trending closer to historical averages after supply was increased through the government land sales programme.
Market sentiment may have been boosted as interest rates eased and developers resumed project launches, but there are “significant uncertainties” ahead, the report said.
“Existing property market and macroprudential measures have restrained excessive demand and ensured household financial prudence,” said MAS. “The government will remain vigilant to market developments, with the objective of promoting a stable and sustainable private housing market.”
HEIGHTENED UNCERTAINTY IN THE GLOBAL ECONOMY
Global economic activity has remained resilient and inflation has eased, but the probability of adverse shocks has increased given policy uncertainty, trade tensions and geopolitical conflicts.
“Rising protectionism and trade tensions, along with continuing conflicts in the Middle East and Ukraine, may lead to larger and more frequent supply shocks,” the report said.
Small, trade-dependent economies could face terms-of-trade shocks, a slowdown in global growth, higher-for longer interest rates and renewed US dollar strength.
Financial vulnerabilities such as elevated debt levels, stretched asset valuations and highly leveraged positions could exacerbate market volatility.
Fiscal risks are elevated in many countries, with average debt-to-GDP ratios rising from 60 per cent pre-COVID-19 to 68 per cent more recently.
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Emerging markets would be vulnerable to currency and capital flow volatility, though these markets in Asia could rely on buffers built up over the past decade, MAS said.
“Policymakers will need to remain vigilant and preserve sufficient policy space to ensure a nimble response,” the report said.
Locally, MAS said corporations have maintained debt levels significantly below pre-pandemic averages. Firms that have borrowed to invest may see higher risks due to weaker earnings and still-elevated borrowing costs, but they continue to have healthy debt maturity profiles and enough buffers to meet short-term needs.
“MAS’ stress tests show that the corporate and household sectors have adequate capacity to manage shocks to incomes and financing costs,” the report said.
The banking sector has strong capital and liquidity positions, while insurers are well-capitalised. Investment funds have also mostly managed liquidity risks well.
“The results of the Industry-wide Stress Test 2024 exercise affirm that banks would be able to withstand a range of severe macrofinancial stresses,” MAS said.
However, a sharp deterioration in the global outlook could pressure their profitability and capital positions.
“Banks and non-bank financial institutions should also remain vigilant against potential liquidity risks,” the regulator said.
