Financial Stability

MAS enhanced surveillance of corporate vulnerabilities and their impact on the financial system 

Financial conditions in 2020-21 have generally been more favourable than during previous crises periods. Domestic factors, such as the exchange rate and equity prices, played the main role in keeping conditions relatively supportive. In addition, external factors, including the CBOE Volatility Index (VIX), contributed to more conductive overall financial conditions into 2021.

Reduced revenue flows and supply chain stresses increased the near-term liquidity risks facing corporates, especially those in more financially vulnerable positions heading into 2020. MAS enhanced surveillance and performed stress tests on financially vulnerable firms and industries. 

The analysis on the corporate sector showed that while COVID-19 led to a fall in earnings and further rise in debt from elevated levels thus worsening leverage risk, most firms should be able to withstand short-term pressures on their financial positions, with firms’ liquidity positions having improved.

MAS also conducted a desktop stress test of domestic systemically important banks (D-SIBs) under two COVID-19 scenarios. Stress test results showed that D-SIBs would have the capacity to absorb severe shocks under both scenarios while continuing to provide credit to businesses and households to support economic activity. The D-SIBs’ stressed Core Equity Tier 1 Capital Adequacy Ratios would also remain well above MAS’ regulatory requirements. Hence, D-SIBs are strongly positioned to weather any further downside risks that may arise from the COVID-19 pandemic.

For the household sector, MAS’ analysis confirmed that households’ debt servicing burden remains manageable under stress, reflecting in part government transfers, as well as measures extended by MAS and the financial industry. These mitigated the impact of a sharp fall in employment incomes in H1 2020.