Monday, July 9, 2012

Eurozone crisis impact on S'pore banks not significant: Tharman

SINGAPORE - The direct impact of the Eurozone crisis on banks in Singapore is not likely to be significant, as loans and investments made by banks here in the Eurozone comprise around 5 per cent of their total exposures.

This was revealed by Deputy Prime Minister Tharman Shanmugaratnam in response to MP for Chua Chu Kang Ms Low Yen Ling's question on the spillover effects of the eurozone crisis on Singapore's banking sector and overall economy.

He added that banks in Singapore also have a low dependence on the Eurozone for funding, with less than 8 per cent of their funding coming from the Eurozone.

Credit supply in Singapore has also not been significantly affected by Eurozone bank deleveraging, he said.

While some Eurozone banks have reduced lending to conserve capital and liquidity, others have been able to obtain increased funding from their head office to support their Asian businesses.

More importantly, other well-capitalised banks with strong liquidity positions, including Singapore and other Asian banks, have stepped in as some Eurozone banks pulled back from their traditional strongholds such as trade finance.

In fact, on aggregate, trade finance activity has continued to grow, he said.

However, he acknowledged that should there be further, significant deterioration in the economies and financial markets of the Eurozone, the Singapore economy will not be insulated.

The spillover effects will manifest largely through the trade and financial channels, he said. Trade-related sectors, including manufacturing and transport, are likely to be the most adversely affected.
There could be some pullback in credit amidst heightened risk aversion, and financing costs could rise.

In the financial services sector, sentiment-driven activities such as stock broking and foreign exchange trading could also see a decline in transaction volumes.

Mr Tharman said the Eurozone situation remains very fluid and the Government is monitoring developments closely and stands ready to act should conditions take a turn for the worse.

"We will ensure that sound businesses continue to have access to financing, and that households and workers receive appropriate assistance," he reassured the public.

As for the specific measures, it will depend on the how the economic situation unfolds, he said.

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