In Focus
ECONOMY, FINANCIAL SERVICES | Marianne Estioco, Singapore

Is the next financial crisis finally here?

Don't panic yet, experts say.

Analysts and policymakers panned Swiss billionaire Felix Zulauf’s idea that a massive crisis is about to hit Singapore’s banking system this year, saying that the city-state’s three largest banks are well-capitalised and should be able to survive a severe shock in the global economy.

Zulauf believes that China’s current economic slowdown could trigger a crisis of similar proportions as the Global Financial Crisis of 2008 and 2009. He warned that Singapore’s three largest banks—DBS, Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB)—face the risk of steep capital outflows if the Chinese economy experiences a hard landing.

“We couldn't reconcile Mr Zulauf's observations with official industry statistic released by [the Monetary Authority of Singapore]. Contrary to Mr Zulauf's views, our three local banks are well capitalised,” said Jonathan Koh, equity analyst at UOB Kay Hian.

In its latest Financial Stability Review, the MAS said that local banks have low non-performing loan (NPL) ratios and ample capital buffers which function as safeguards against the turning credit cycle.

The central bank conceded that there are signs of increased credit risks, such as a slight uptick in nonperforming and special mention loans, but asserted that overall asset quality remains healthy.

“Singapore’s banking system remains resilient amid an uncertain external environment. Banks have strong capital and liquidity buffers to withstand severe shocks but continued vigilance is warranted,” the MAS said. 

“We do not want to downplay the current slowdown in economic growth in Asia. However, we do feel that Mr Zulauf has over exaggerated the weaknesses in Singapore's financial system,” Kho noted. 

In a recent report, RHB Research said that while NPLs will rise, default ratios are unlikely to reach alarming levels. 

“While concerns over China’s slowing growth are not new, growing predictions that oil prices would stay at depressed levels are stoking fear that Singapore’s three listed banks would soon be hit with rising defaults in their oil and gas exposures. SG Banks believe the rise in non-performing loans (NPLs) would remain manageable. Most oil & gas customers are said to have a decent balance sheet to help them weather the challenging times,” the report said.

When it comes to the dreaded Chinese slowdown, the central bank noted that strong intra-regional linkages could increase contagion from a China-related shock, while subdued regional growth adds to headwinds in Asia. However, it stressed that significant corporate distress in Asia remains a low probability scenario.

“On the whole, Asian economies appear relatively resilient. The reverse stress test indicates that corporate sectors in most of Asia require shocks far greater than those seen during the AFC or the GFC to come under significant distress,” the MAS said.

Bank of America Merrill Lynch (BofAML) echoed this sentiment, saying that China will be able to “muddle through” its current woes without experiencing a hard landing.

“We argue the risks of a full-blown financial crisis combined with sizable currency depreciation remain limited, but reckon that growth headwinds could strengthen if the government promotes capacity reduction aggressively without supporting countercyclical policy adjustments,” BofAML said. 

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