Singapore’s financial services sector shows resilience, finds MAS

Launching its annual report, the Monetary Authority of Singapore (MAS) noted that the country’s finance industry was among the sectors that had fared best so far during the pandemic.

There is more to be done, however, in terms of both increasing resilience and taking advantage of the support measures. MAS issued its annual report 2019/20 on 16 July 2020. In our opinion, the key takeaways in relation to the finance industry and regulatory development include:

Decrease in net profit

MAS’s net profit to 31 March 2020 (S$10.6 billion) is 45% lower than the previous year’s figure (S$19.2 billion). This decrease is mainly due to a drop in investment income caused by the significant fall in global markets, especially in the last quarter of the financial year. There was also a 10.5% increase in total expenditure, largely due to higher interest payments. Because global markets will continue to be volatile throughout 2020, we believe MAS could suffer a further fall in investment income this year.

Covid-19

MAS expects Singapore to show negative GDP growth of between -7 % and 4% during 2020. The recession will have the most impact on construction, travel-related services, and customer-facing domestic services (retail, food services and land transport), totalling about 12% of Singapore’s GDP. The modern services cluster, including financial and professional services, is among the least affected sectors in Singapore.

Monetary stability

MAS is aiming to keep the nominal effective exchange rate on a 0% appreciation path, and to maintain a stable exchange rate throughout the Covid-19 crisis. MAS’s money market operations have ensured the smooth functioning of Singapore’s short-term funding markets. MAS has also maintained adequate Singapore dollar and US dollar liquidity to support the country’s needs.

Financial stability

MAS has conducted a stress test on the banking and insurance industry in light of the Covid-19 crisis, and found that Singapore’s major banks and insurers are resilient. MAS has also been in touch with banks and insurers to discuss their capital management plans.

Regulatory relief for financial institutions

MAS has implemented transitional measures to ensure banks can maintain lending capacity: for example, it is allowing them to recognise 100% of regulatory loss allowance reserves as Tier 2 capital. It has provided guidance to financial institutions on estimating their loan loss allowance. There are also transitional measures to support insurance companies in calculating their financial resources.

Operational resilience of financial institutions

MAS requires financial institutions to have robust business continuity plans in place to address various scenarios that might disrupt their business operations, including pandemic events. It notes that these plans have helped the sector to adapt to the effects of Covid-19. MAS has now issued a number of cyber-security related advisories to financial institutions to address increased cyber attack risks arising from remote working.

Investment in training for the finance industry

In April, MAS launched a S$125 million support package to subsidise financial institutions’ training and workforce costs (e.g. salary support). The support package also provides a Digital Acceleration Grant to help financial institutions adopt digital solutions to improve different aspects of their operations, including risk management, productivity and client engagement.

Green and sustainable finance

MAS has issued a consultation paper with draft guidelines for financial institutions on managing environmental risks. It will launch a grant scheme for green and sustainability-linked loans in Q4 2020 to encourage the development of green products. From a FinTech perspective, MAS will provide a comprehensive update on green finance strategies later in 2020, based on the proposals received from the Global FinTech Innovation Challenge held earlier in 2020.

The annual report shows that MAS is implementing measures and initiatives to maintain Singapore’s position as the Asian financial centre, and to develop new business opportunities for the finance industry, for example in FinTech and green finance. These efforts should go far to help the sector, and Singapore’s economy, to weather the effects of Covid-19, but will require active participation by financial institutions.

Please reach out to us if you would like to know how we can help you to stay abreast of developments in this area, or support you in complying with MAS regulations.

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