People wearing protective masks as a precaution against the coronaviruses COVID 19 walk during lunch hour in the central business district of Singapore, December 14, 2020. The central bank of Singapore warned people to be cautious about taking on more mortgage debt because of the increase in financial vulnerability this year, EDGAR SU REUTERS SINGAPORE Singaporean households, corporates and banks have seen an increase in financial vulnerability this year, the city-state central bank said on Friday.
The Monetary Authority of Singapore said in its annual financial stability review that the higher vulnerability was due to the unwinding of the pandemic-related precautionary buffers.
The central bank's stress test showed that corporates and households were resilient to macrofinancial shocks, while banks hold strong capital positions.
The central bank noted that households should be prudent when committing to mortgage loans because financial conditions were expected to tighten further in the coming quarters, especially those in lower-income groups.
In the third quarter of 2022, housing loans were the key driver of a rise in household debt, contributing 2.7 percentage points to the overall 3.1% year-on-year growth in the third quarter of 2022, it said.
The credit quality of housing loans had improved over the past year, after tighter rules were introduced in December last year.
Loan-to-value ratios have fallen to 43% in the third quarter of 2022 from 54% in 2017 and just 30 units were foreclosed this year.
The Monetary Authority of Singapore expects growth to slow down over the next year, with inflation likely to remain above the target of many central banks.
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The central bank of Singapore said that if inflation and interest rates are higher than previously expected, the debt burden for vulnerable households and businesses will be worsen, putting greater stress on banks.
The central bank said that banks are better positioned than in the Global Financial Crisis to manage credit risks and absorb losses.