Government says Singapore's banking system is sound

But is worried by rise in household debt.

The Monetary Authority of Singapore said it has been monitoring credit growth very closely. It remains concerned that if interest rates rise and property prices fall, any built-up risks will materialize.

It noted that local banks, however, have strong financial positions and are well-capitalized, with prudent provisions against loss.

MAS said the overall outlook for Singapore is better this year and the economy will comfortably meet the growth forecast of 1% to 3%.

The outlook has improved globally, with less likelihood of a euro zone break-up or a fiscal cliff in the US. The slowdown in China has been measured and GDP growth for the year is unlikely to fall below 7%, MAS believes.