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Global economy and financial system at most fragile state: MAS By Ryan Huang | Posted: 18 November 2011 1232 hrs |
SINGAPORE: The Monetary Authority of Singapore (MAS) warns that the global economy and financial system are at their most fragile state since the global financial crisis four years ago. In its annual report on the economy, the Financial Stability Review November 2011, the central bank said financial stability risks have increased significantly in the second half of the year.
MAS highlighted that key risks facing Singapore included a protracted global economic slowdown, financial contagion and pressures in the property market. It warned that a protracted global slowdown could weigh on the domestic economy, cause corporate earnings to fall, with knock-on effects on employment and wage growth.
"The resulting impact on corporate and household balance sheets could expose over-extended borrowers and lead to a deterioration in the quality of banks' loan portfolios. It is therefore important for borrowers to stay financially prudent," the central bank said. "Over-extended borrowers could face strains if these risks crystalise," it added.
Secondly, the central bank warned that external shocks and financial contagion could lead to funding stresses, and higher borrowing costs. It noted that market pressure on European banks to rebuild capital buffers and reduce risk could weaken their ability to provide credit to the real economy.
Thirdly, the MAS believes there needs to be continued caution and vigilance over the property market. It said that while cooling measures taken by the government have dampened the momentum in the property market somewhat, sales by developers have remained firm.
Overall, the MAS said that Singapore's economy and financial system have been resilient, with corporate and household balance sheets remaining healthy, supported by the country's economic growth. It added that Singapore's financial sector has negligible exposures to the peripheral euro zone countries, with banks and insurance companies maintaining high capital and liquidity ratios.
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