Singapore banks warned on threats from foreign currency loans

The central bank warns of a sudden spike in global risk aversion that can hurt the Singapore banking system.

According to Reuters, Singapore's central bank warned banks of risks from relying on financial markets to back their U.S. dollar and other foreign currency loans.

Citing a MAS report, Reuters noted that while banks in the Southeast Asian city-state are well capitalised and asset quality is improving, their loan-to-deposit ratio (LTD) for foreign currency loans rose to 124 percent in the third quarter from 99.7 percent a year ago.

"As the global financial crisis showed, a sudden spike in global risk aversion can trigger a global U.S. dollar liquidity crunch with knock-on effects on the Singapore banking system," the central bank said in the report.

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