Featured Product

    MAS Report Reviews Stability of Financial Sector in Singapore

    December 06, 2021

    The Monetary Authority of Singapore (MAS) published a report on the assessment of risks and vulnerabilities arising from developments in Singapore and the global economy. The report also contains four special features on an assessment of the ongoing research on the integrated macro policy framework, climate transition risk exposure of banking and insurance sectors of Singapore, enhancing corporate surveillance with probability of default model, and an empirical analysis of the determinants of domestic interest rates and net interest margin. In Singapore, indicators of vulnerability for the corporate, household, and financial sectors have improved through the COVID-19 pandemic, notes the review. Results of the Industry-Wide Stress Test in 2021 show that banks in Singapore are well-positioned to weather further adverse macroeconomic shocks.

    The report on the financial stability review finds that banks and insurers have strong capital positions, while investment funds have been able to meet increased redemptions. Domestic systemically important banks (D-SIBs) have continued to maintain healthy liquidity buffers. Both SGD and foreign currency loan-to-deposit ratios are below 100%. Overall, credit growth has been healthy, largely driven by non-bank lending. Resident non-bank lending registered robust growth, in turn raising resident leverage risk slightly. Nevertheless, asset quality is healthy and provisioning coverage is adequate. Stress test shows that banks would be resilient to further downside risks. The non-bank financial institution sector has weathered the stresses from the pandemic well too. Investment funds have been able to meet redemptions in an orderly manner and insurers remained well-capitalized. Also, stress tests show that the financial resources of central counterparties would be sufficient to cover clearing member defaults under stress, with limited contagion risks. Financial institutions should continue to exercise prudence and maintain vigilance against potential downside risks to the macroeconomic outlook. Banks should also maintain prudent levels of provisions and strong liquidity profiles. 

    The special feature on climate transition risk highlights that banking sector’s loan exposures to the Climate Policy Relevant Sectors, or CPRS, (excluding residential mortgages) have remained stable at 29% to 31% of total loan portfolio over 2015-2020. The loan exposures were mainly to CPRS with lower emissions, suggesting less susceptibility to potential impairments from changes in climate policy. By using MAS’ statistical returns and information from industrial classifications, this analysis has obtained high-level estimates of the banking and insurance sectors’ exposure to transition risk. As data becomes more readily available, MAS will be able to further refine its analytical approaches to better quantify banks’ and insurers’ exposures at risk across time and monitor institutions’ efforts in managing their transition risk exposure. In addition, to provide a more forward-looking view of the impact of climate risk on the financial sector, MAS will incorporate a range of thematic climate scenarios as part of the 2022 Industry-Wide Stress Test. These exploratory scenarios will feature both physical and transition risks over a thirty-year horizon and will take reference from the long-term climate scenarios developed by the Network for Greening the Financial System (NGFS) as well as feedback obtained from financial institutions in MAS’ earlier engagements. MAS will continue to work in partnership with industry, academia, other regulators, and international organizations to assess the resilience of the financial system to climate risks.

    The special feature on enhancing corporate surveillance with Probability of Default (PD) model presents how EPG-MSD could enhance its surveillance framework of identifying vulnerable firms by complementing it with NUS Credit Research Initiative (NUS-CRI)’s PD model, which produces PD term structures of firms on a daily basis. This model-based approach provides a market-based, timely, and forward-looking assessment of the PD of corporates, taking input from macro-financial factors and market-based expectations as well as accounting-based measures of firm-specific financial attributes. This feature also discusses how the NUS-CRI PD model could complement the Economic Policy Group-Macroprudential Surveillance Department (EPG-MSD) framework in the comprehensive surveillance of non-financial corporates as well as to overcome the trade-offs in reducing both “Type I” and “Type II” errors—that is, to reduce the error of wrongly identifying vulnerable firms that are actually not vulnerable as well as reduce the error of not identifying vulnerable firms that are actually vulnerable. The EPG-MSD framework also allows sufficient versatility to delve further into the financial ratios of firms, conduct stress testing across various scenarios, and to take a differentiated surveillance approach for different segments of firms and across different sectors, as needed. EPG-MSD will look to incorporate the NUS-CRI PD model in their framework to support the ongoing surveillance of the health of the corporate sector in Singapore.

     

    Keywords: Asia Pacific, Singapore, Banking, Insurance, Securities, Basel, Regulatory Capital, Stress Testing, Interest Rate Risk, Climate Change Risk, Transition Risk, Credit Risk, Probability of Default, Financial Stability Review, MAS

    Featured Experts
    Related Articles
    News

    BCBS Consults on Guidelines for Counterparty Credit Risk Management

    The Basel Committee on Banking Supervision (BCBS) is seeking comments, until August 28, 2024, on guidelines for counterparty credit risk management of banks.

    May 21, 2024 WebPage Regulatory News
    News

    ISSB Releases Digital Sustainability Disclosures Taxonomy

    The themes of the harmonization and interoperability of sustainability disclosure standards among various jurisdictions remain at the top-of-mind for international standard-setting bodies.

    May 21, 2024 WebPage Regulatory News
    News

    BCBS Report Studies Implications of Digitalization of Finance

    The Basel Committee on Banking Supervision (BCBS) published a report that examines the implications of the digitalization of finance for banks and supervisors.

    May 21, 2024 WebPage Regulatory News
    News

    HKMA Publishes Hong Kong Taxonomy for Sustainable Finance

    The Hong Kong Monetary Authority (HKMA) published the Hong Kong Taxonomy for Sustainable Finance.

    May 21, 2024 WebPage Regulatory News
    News

    EU Taking Steps to Set Out and Enforce AI Regulations

    Many believe that the transformative power of generative artificial intelligence (GenAI) has potential to reshape the financial sector in the time to come.

    May 21, 2024 WebPage Regulatory News
    News

    BIS Paper Outlines Vision for Future Financial System

    In a recent paper, the General Manager of Bank for International Settlements (BIS) and the Indian entrepreneur (Infosys co-founder) Nandan Nilekani have laid out a vision for the Finternet, which is proposed to be a network of multiple financial ecosystems, much like the internet.

    April 29, 2024 WebPage Regulatory News
    News

    NGFS Outlines Options for Supervisory Review of Transition Plans

    The Network for Greening the Financial System (NGFS) recently published three reports on the use of transition plans to boost sustainable finance and manage climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    BCBS Issues Discussion Paper on Climate Scenario Analysis

    The Basel Committee on Banking Supervision (BCBS) issued a discussion paper on the use of climate scenario analysis to strengthen the management and supervision of climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.

    April 25, 2024 WebPage Regulatory News
    News

    CFIT to Chair Open Finance Taskforce Announced by UK Government

    The UK government announced the formation of an industry-led Open Finance Taskforce, chaired by the Center for Finance, Innovation, and Technology (CFIT).

    April 25, 2024 WebPage Regulatory News
    RESULTS 1 - 10 OF 8967