Monetary Authority of Singapore News
QUESTION NO 590
NOTICE PAPER 305 OF 2013
FOR WRITTEN ANSWER
Date: For Parliament Sitting on 12 August 2013
Name and Constituency of Member of Parliament
Mr Chen Show Mao, MP for Aljunied GRC
Questions:
To ask the Prime Minister (a) when is the most recent MAS stress test conducted for banks in Singapore; (b) whether such stress tests are conducted for foreign banks holding banking licences in Singapore; and (c) whether the results of such stress tests can be released in whole or in part, on an industry-wide or other bases, to boost public and investor confidence in light of the revision in Moody's outlook on local banks.
Answer by Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in charge of MAS:
1 MAS conducts regular stress tests of all the local and major foreign banks in Singapore. These stress tests are carried out annually, but more frequent stress tests may be conducted when necessary, for example during the 2008-9 financial crisis.
2 The aim of the stress tests is to assess the banks’ ability to withstand adverse financial and economic shocks, and to evaluate the potential impact on Singapore’s financial stability. MAS uses stress tests as a pre-emptive supervisory tool to encourage financial institutions to build adequate buffers and put in place risk mitigation plans across a range of adverse conditions.
3 Earlier this year, MAS completed a stress test exercise based on end-2012 data. The results showed that the banking system as a whole remained sound, and able to withstand adverse scenarios. The local banks in particular would be able to maintain adequate financial buffers above MAS’ regulatory requirements under the prescribed stress scenarios.
4 Moody’s and Standard & Poor’s (S&P) reached similar conclusions. Moody’s found that the three local banks have enough capital to withstand even the severe stress test scenarios the agency considered. Moody’s continues to assign the local banks the highest average credit ratings (Aa1) amongst banking systems globally, but has placed this rating on a ‘Negative’ outlook, ie to indicate the possibility of a downgrade, especially if loan defaults were to rise when interest rates go up. S&P recently affirmed the local banks’ strong AA- ratings and a “Stable’ outlook, based on their strong financial profiles and prudent management strategies.
5 MAS does not publish stress test results. There are a few reasons for this. First, MAS has an obligation to keep confidential the information provided by financial institutions in conducting the tests. Second, releasing the results could encourage financial institutions to focus on achieving the right grade for the test and in the process, take a narrow view of identifying risks and appropriate mitigating measures. Regulators in certain jurisdictions facing severe financial stresses have felt it necessary to disclose stress test results for individual banks in order to calm volatile markets and restore public confidence in their banking systems. Singapore, like jurisdictions whose banking systems have remained sound and stable, has not seen the need to do so.
6 There are however several readily available sources of information which the public can use to assess the risks carried by banks. These include publications by MAS, such as the Financial Stability Review, as well as the banks’ annual reports and financial statements.