Institutions here pass world body's stress tests to weather extreme crisis
By Yasmine Yahya, The Straits Times, 15 Nov 2013
THE International Monetary Fund (IMF) has stress-tested Singapore's financial institutions and found the sector resilient enough to weather even an extreme economic crisis.
It described the financial sector as well-regulated and highly developed with rules and supervision frameworks that rank among the best in the world.
In its report released yesterday, the IMF also recommended ways to further strengthen the sector here.
The IMF review, which began in June last year, comes about from its decision in 2010 to put 25 advanced economies through a stability assessment every five years.
Assessors found that Singapore has a very high level of compliance with international standards for supervising the banking, insurance and securities sectors.
The report added that Singapore has "sound policies and skilful macroeconomic management" that have spurred a rebound in economic activity since the 2008 financial crisis while keeping inflation in check. Financial market infrastructures, including the Singapore Exchange's clearing and settlement systems, were also found to be sound and efficient.
The stress tests found that Singapore's banks and insurers could withstand a plunge in economic activity or a sharp fall in property prices.
Monetary Authority of Singapore (MAS) managing director Ravi Menon noted that the IMF review is a rigorous and comprehensive one. "It provided us the opportunity to be independently benchmarked against international best practices and to evaluate policy actions to address any vulnerabilities in our financial system," he added yesterday.
The IMF came up with a list of 18 recommendations for improvement. In the short-term, within the next 12 months, it proposed that MAS consider stepping up on-site checks of bank credit risks, given rising household and corporate debt. The authorities should encourage over-extended households to cut their debt.
In its response, the authorities here noted that various measures have been implemented to encourage financial prudence among borrowers and to strengthen credit underwriting practices at banks.
In the medium-term, IMF said MAS should ensure its role as regulator is not compromised by its mandate to develop the financial sector. The Singapore authorities responded by noting that the country's resilience over the years when faced with financial crises is the best evidence that MAS has a track record of independent and effective supervision of the financial sector, despite its dual role.
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