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

    ECB Finds Banks Unprepared for Pillar 3 Climate Risk Disclosures

    The European Central Bank (ECB) published results of the 2022 supervisory assessment of climate-related and environmental risk disclosures among significant institutions (103) and a selected number of less significant institutions (28).

    April 21, 2023 WebPage Regulatory News
    News

    NCUA Assesses Credit Union Exposure to Climate-Related Physical Risks

    The National Credit Union Administration (NCUA) released a Research Note that examines the exposure of credit unions to climate-related physical risks. In a related development

    April 21, 2023 WebPage Regulatory News
    News

    EBA Issues Multiple Regulatory and Reporting Updates for Banks

    The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework.

    April 21, 2023 WebPage Regulatory News
    News

    EC Adopts Regulation on Own Funds, Issues Other Updates

    The European Commission adopted Delegated Regulations on own funds and eligible liabilities, on requirements for the internal methodology under the internal default risk model

    April 20, 2023 WebPage Regulatory News
    News

    CDP Platform to Report Plastic-Related Impact, Issues Other Updates

    The Carbon Disclosure Project (CDP) announced that its global environmental disclosure platform has enabled reporting on plastic-related impact for nearly 7,000 companies worldwide

    April 19, 2023 WebPage Regulatory News
    News

    IASB to Enhance Reporting of Climate Risks, Proposes IFRS 9 Amendments

    The International Accounting Standards Board (IASB) updated its work plan to enhance the reporting of climate-related risks in the financial statements,

    April 19, 2023 WebPage Regulatory News
    News

    BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks

    The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks.

    April 17, 2023 WebPage Regulatory News
    News

    FCA Sets Out Business Plan, Launches TechSprint on Greenwashing

    The Financial Conduct Authority (FCA) published its business plan for 2023-24. The plan sets out details of the work planned for the next 12 months to achieve better outcomes for consumers and markets

    April 17, 2023 WebPage Regulatory News
    News

    UK Committee Sets Out Recommendations for Next Phase of Open Banking

    The Joint Regulatory Oversight Committee (JROC), comprising the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and the HM Treasury and the Competition and Markets Authority (CMA) as members

    April 17, 2023 WebPage Regulatory News
    News

    ECB Publishes Multiple Regulatory Updates for Banking Institutions

    The European Central Bank (ECB) published the results of the 2022 climate risk stress test of the Eurosystem balance sheet,

    April 17, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8868