And cut-throat competition among banks.
Standard & Poor's Ratings Services has opined that Singapore banks benefit from operating in a high income and economically and politically stable environment in its report "Banking Industry Country Risk Assessment: Singapore."
According to a release from Standard & Poor's Rating Services, Singapore's economy is highly competitive, diverse, and resilient, and the large degree of fiscal and monetary policy flexibility, as well as the highly rated sovereign, support this economic resilience.
Here's more from Standard & Poor's Rating Services:
We consider that high economic imbalances exist in Singapore due to high residential real estate prices and a rapid rise in private sector credit in recent years.
Moderate leverage in the private sector compared with high income levels supports the economy's debt-bearing capacity. Singapore banks have conservative lending practices and underwriting standards.
They also benefit from a very strong payment culture and rule of law in the country. We believe the institutional framework is very strong in Singapore.
Our view reflects the country's capital regulations that are more stringent than international standards, and the regulator's very strong record of maintaining financial stability during past crises.
Singapore's sound governance and high transparency provide further support. Risk appetite is restrained, and the banking sector had relatively stable profitability even during periods of external turmoil. Banks do not have high-risk characteristics.
Singapore's economic trend is stable. We expect the government's forward-looking and pragmatic approach to policymaking to sustain Singapore's high global competitiveness. Singapore has an open economy, which is exposed to exogenous shocks. However, the government's extensive fiscal and external reserves underpin its ability to deal with cyclicality.
Meanwhile, economic imbalances remain high, reflecting elevated property prices because of several factors, including supply-demand forces, rising household income, and speculation.
We consider the industry risk trend to be stable, reflecting our expectation that the Monetary Authority of Singapore would take timely action to address economic imbalances, if needed.
Domestic banks have strong funding profiles and maintain healthy local currency deposits, reflecting their dominant retail presence, strong consumer confidence, and Singapore's high savings rate of about 50% of GDP.
However Singapore banks have been expanding overseas to offset limited domestic growth prospects and margin pressures due to competition.
We consider that such expansion could pose challenges for the regulator as well as signal an increase in the banks' risk appetite.
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