Some highly-leveraged households in Singapore may be vulnerable if interest rates rise or the economy slows, its central bank said on Thursday, asserting it will take more steps if needed to keep household debt at manageable levels. "Despite some moderation in the overall level of household indebtedness, the level of debt among highly leveraged households bears close watching," the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review.
Official data showed Singapore's household debt was equivalent to 76.3 percent of gross domestic product (GDP) in the third quarter, compared with 71.9 percent two years earlier. According to Bank of America Merrill Lynch, at June 30 Malaysia's ratio was 86.5 percent and Thailand had 83.5 percent. Household debt is a concern in much of Asia, particularly as the US Federal Reserve is expected to raise rates in 2015, which could lift Asian ones.
Singapore and Hong Kong could be on the "front lines" of vulnerability to Fed tightening, as their interest rates have a particularly high correlation to US levels due to the exchange-rate regimes they employ, said Tim Condon, Singapore-based head of Asia research for ING. Still, as Singapore authorities have taken prudential measures to curb household debt, it is unlikely to turn into a systemic issue, Condon said. "It's almost certainly the case that there will be some stress when the Fed begins hiking," he said, adding that the "proactive" stance of Singapore authorities "will mean that it remains a micro problem and not a macro problem."
In recent years, MAS has taken steps - including ones to cool the property market - to curb excessive household borrowing. It said expansion of household debt slowed to 5.6 percent year-on-year in the third quarter, from a 9.2 percent average over the last five years. The MAS said household balance sheets remained healthy, with household net wealth now about four times Singapore's GDP. Housing loans accounted for 74 percent of household liabilities as of the end of September, the MAS said. The central bank said it will continue to monitor the property sector and take appropriate steps to maintain a stable and sustainable market. Private property prices remain at an "elevated" level even though they have moderated, it said. The MAS said Singapore's banking system remains sound, is resilient to risks stemming from the property market and holds a healthy buffer against falls in property prices.