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S'pore 'not at risk of credit bubble'
Publication Date : 15-01-2014
Singapore's central bank has said the country is not in danger of being caught in a credit bubble that puts it or the banking system at any risk of crisis.
In a statement underlining the strength of the financial system, the Monetary Authority of Singapore (MAS) said "serious observers and investors" have no doubt over the nation's financial health.
It said three facts stand out: The property market is stabilising; household balance sheets are strong; and the financial system is robust. The statement was in response to media queries that the MAS received on an online Forbes article published on Monday.
In it, Forbes columnist Jesse Colombo said Singapore is headed for an Iceland-style meltdown, as low interest rates have encouraged households and firms to take on more debt and fuelled an unsustainable surge in property prices.
This has led to bubbles in the construction and financial services sectors, he said. Colombo, who has the nickname "bubbleologist" for his preoccupation with credit bubbles, recently warned that Malaysia, Thailand, the Philippines and Indonesia are caught up in a massive one.
In its response, the MAS said it has already taken steps to cool the property market and prevent households from taking on too much debt. The property market is now stabilising, it added, and new housing loans are declining.
Household balance sheets are, on the whole, strong. "Property asset values are significantly higher than debts incurred. The average loan-to-value ratio of outstanding housing loans stands at a healthy 47 per cent as of the third quarter of 2013, implying a large buffer in asset values," it said.
The recent Financial Sector Assessment Programme by the International Monetary Fund has also found that Singapore's financial system would remain sound even under severe stress scenarios.
"Singapore's triple-A rating from all the major rating agencies is not an aberration. It attests to the country's economic and financial strength, including its sizeable foreign reserves," MAS said.
Barclays economist Leong Wai Ho noted the article's flawed assumptions about Singapore's ability to deal with major shocks to the economy. It said the government is limited in its ability to bail out banks here due to a high public debt, but Leong said that this is not true as Singapore has significant surpluses.