Singapore’s economy is in a “dire” situation because of the coronavirus crisis but stress testing of banks and insurers found that they are strong enough to withstand a “very adverse scenario”, according to the head of the city state’s central bank.
Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), says unemployment and corporate bankruptcies are likely to increase in the coming months.
“We are not at the beginning of the end, but rather the end of the beginning…The recovery is likely to be slow and uneven, weighed down by renewed outbreaks of infections here or abroad,” he told reporters in opening remarks at a virtual media briefing on July 16 to release MAS’s latest annual report.
Mr. Menon says corporate and household debt levels will be higher going into 2021, which will be a further drag on economic growth and could become a source of vulnerability.
But he says stress-testing of major banks and insurers in the city state found that the financial system was strong enough to withstand the risks.
The stress test was based on the assumption of recession in 2020 and 2021, with gross domestic product shrinking almost 6%, the jobless rate rising to around 6%, stock and oil prices falling more than 30%, and property prices plunging over 35%.
“The stress test showed that our major banks and insurers remain resilient against this very adverse scenario,” Mr. Menon says.
“MAS is determined that the financial system in Singapore remains robust and resilient. Our banks have built up strong capital and liquidity buffers, and are well-placed to weather these risks even as they continue to extend credit,” he adds.
Meanwhile, MAS reported that its net profit for the financial year ended March 31, 2020 declined to S$10.6 billion (US$7.62 billion) from S$19.2 billion in the previous year. No reasons were provided for the near 45% plunge.
Half the profits, or S$5.3 billion, will be returned to the government and the other half will be added to the central bank’s reserves.