Banks should take into account potentially higher interest rates in their credit assessments and not assume that the current low cost of funds will last indefinitely, the head of the Monetary Authority of Singapore (MAS) said on Friday, as he underlined the need to guard against the risks of asset bubbles.
“Many parts of Asia in particular are vulnerable to property bubbles, not only because of current liquidity conditions but also because many investors believe that, in a growing economy, the property market can only move up,” Mr Heng Swee Keat, the managing director of the MAS, said at the opening of French business school EDHEC’s Risk Institute Asia.
“Many have forgotten how the property markets in the region slumped during the 1997/98 Asian Financial Crisis,” he said.
He said policy makers must leave no doubt of their resolve to tackle the potential build-up of risks and must be willing to take progressively tougher measures, as MAS and other agencies in Singapore had done recently to cool the property market.
The measures, effective from Jan 14, included seller stamp duties imposed at 16, 12, 8 and 4 per cent, respectively, for homes sold in the first, second, third and fourth year from purchase, as well as the lowering of the loan-to-value ratio to 60 per cent for individuals with outstanding mortgages. Also, financial institutions can only grant loans amounting to half the value of the properties purchased by non-individuals, such as companies, trusts and collective investment schemes.
Urging banks to continue prudent lending practices, Mr Heng said the MAS will monitor bank activities closely.
Mr Heng also said the MAS will require all local banks and significant insurers to form a specific committee that will look into how they manage risks.
He said these institutions must have a dedicated Risk Management committee in place after their annual general meetings this year and members of this committee must have the right skills and expertise to perform their duties.
Starting this year, all board members of local banks will also be required to undergo training but MAS didn’t provide details on what the training should comprise.
Analysts said the announcement on Friday provided a clear and positive direction for local banks.
“The timing is right,” said Ms Annie Koh, associate professor of finance at Singapore Management University (SMU), adding that having a good risk management committee will be most relevant since many local financial institutions are taking on more cross-border expansions.
A DBS spokesman said that for over a decade, the bank has had in place a board risk management committee comprising seasoned bankers and professionals who have deep knowledge of risk management.
“DBS also provides ongoing training for the entire board to help them keep abreast of the latest developments in risk management, capital management, accounting policy changes and regulatory changes,” the spokesperson added.
OCBC’s Risk Management Committee has been in place since August 2004. It reviews and approves the bank’s overall risk management philosophy, risk management frameworks, major risk policies and risk models.
“Our progressive efforts over the years to strengthen risk management practices has enabled the Bank to weather the recent financial crisis with sound asset quality and credit losses below industry level,” said Mr Gilbert Kohnke, Group Chief Risk Officer, OCBC.
Meanwhile, a UOB spokesperson said the bank’s Executive Committee of Directors has been assisting the Board to manage risks.
“Going forward, a dedicated Risk Management Committee will take over from the Exco, the role of assisting the board in managing the risks arising from the growing complexity of the financial landscape,” the spokesperson added.
Source : Today – 22 Jan 2011