SINGAPORE — The Monetary Authority of Singapore (MAS) today (Jan 14) rejected suggestions that a credit bubble was brewing in the Republic, after an article published on Forbes.com predicting an imminent meltdown of Singapore’s economy went viral.
In response to media queries, the MAS reiterated that Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis. It added: “Serious observers and investors are not in doubt about the country’s financial health.”
The lengthy article, Why Singapore’s Economy Is Heading For An Iceland-Style Meltdown, was published yesterday, complete with several charts. It was written by a contributor, Mr Jesse Colombo, who described himself on Forbes.com as “an economic analyst and anti-economic bubble activist who was recognised by the London Times for predicting the global financial crisis”.
He concluded “Singapore’s bubble will most likely pop when the bubbles in China and emerging markets pop and as global and local interest rates continue to rise, which are what inflated the country’s credit and asset bubble in the first place”.
In October, he warned in his Forbes column that Malaysia’s economic bubble would burst, citing similar reasons.
He said in his latest article that he plans to publish “more reports on other countries that I consider to be part of the emerging markets bubble”.
The MAS said it was clear that unusually low global interest rates have stimulated credit growth and an increase in property prices in recent years in Singapore as well as some other economies that had recovered from the global crisis.
“That is why the Government and the MAS have taken decisive steps to cool property demand and prevent excessive leverage,” it said.
It cited three facts which “stand out clearly”: First, the property market is now stabilising and new housing loans have been declining.
Second, household balance sheets are “on the whole strong”. “Property asset values are significantly higher than debts incurred,” said the MAS, pointing out that the average loan-to-value ratio of outstanding housing loans is at “a healthy 47 per cent” as of the third quarter last year, “implying a large buffer in asset values”.
It added: “Even excluding the value of property assets, cash and bank deposits owned by households exceed total household debt.”
Third, the financial system is robust, the MAS said. It cited the recent Financial Sector Assessment Program (FSAP) by the International Monetary Fund that found that Singapore’s financial system would “remain sound even under severe stress scenarios, which include a sharp increase in interest rates together with a steep decline in property prices”.
The MAS said: “Singapore’s banks are resilient, with strong financial and capital positions. Singapore’s triple-A rating from all the major rating agencies is not an aberration. It attests to the country’s economic and financial strength, including its sizeable foreign reserves.”