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Continued from
FrontPage of Article
Opening Remarks By Mr
Heng Swee Keat, Managing Director,
at MAS' Annual Report 2005/2006 Press Conference,
20 July 2006
Good morning. Thank you for attending this press conference. I
would highlight some of the key issues for MAS this past year and
the focus for us moving forward. Let me start with a quick review
of the economy.
Review of the Economy
2. Despite the recent volatility in
financial markets, global economic fundamentals remain strong.
Corporate earnings are robust and labour markets are strengthening
in the major economies. While global monetary conditions may be
further tightened in response to the potential risk of higher
inflation, this is taking place in the context of relatively robust
economic growth.
3. Rising tensions in the Middle East
have recently pushed up oil prices further. The futures market
suggests that oil prices are expected to stay at these elevated
levels of about US$80 a barrel. The world economy has thus far been
resilient to higher oil prices. However, the risks of a sharper
slowdown due to supply side disruptions have now increased and
clearly, geopolitical developments will have an important bearing on
the evolution of oil prices, financial markets and the real economy
going forward.
4. While US growth may moderate
somewhat, overall external demand is held up by improving conditions
in Europe and Japan, as well as continued robust expansion in China
and India.
5. The Singapore economy grew by a
robust 6.4% last year. Looking ahead, the factors that underpinned
the growth of the Singapore economy in 2005 will continue to support
the expansion this year. Thus far, the economy has expanded by an
estimated 9% (year-on-year) in the first half of this year, based on
the advance estimates released last week. Although global IT demand
growth may be capped somewhat by potentially slower growth in the US
in H2 2006, the prospects for continued economic growth in the
quarters ahead appear intact. Barring any unexpected shocks in the
external environment including an escalation in geopolitical risks
in the second half of this year, GDP growth for the year as a whole
is likely to be in the range of 5 to 7%.
6. Although the pass-through of high
oil prices on both energy-related consumer items and business
operating costs are expected to strengthen, our overall domestic
inflationary pressures should be fairly well contained.
7. Taking into account the growth and inflation prospects, MAS'
assessment is that our current policy stance of a modest and gradual
appreciation of the S$NEER, with no re-centering of the band, nor
any change to its slope or width, remains appropriate. We will
continue to monitor and assess external and domestic economic
conditions.
Financial Markets
8. In June, we published our semi-annual assessment of the
stability of the financial system. Not surprisingly, given the
good macroeconomic performance of the economy, our assessment was
that the financial system remains sound and robust and is in a
strong position to weather the risks in the external environment.
In particular, the banking, corporate and household sectors are
doing well and their balance sheets have strengthened over the past
year.
9. Rising wealth in Asia and the
focus on Asian growth prospects have resulted in more allocation of
assets to the region by investors. This, coupled with high
regulatory standards that are responsive to investors' demand, have
created a high level of trust and confidence in Singapore's
financial sector.
10. Our financial services sector
continues to perform well, growing at 6.5% in 2005. It is expected
to record further expansion this year. Offshore-related activities
have generally performed well over the first half of 2006, and are
expected to be a key growth catalyst in the months ahead. Although
domestic equity prices were also hit by the worldwide sell-off in
May and June, this followed a period of strong run-up in asset
prices and did not reflect a shift in underlying fundamentals. The
outlook for the domestic fund management industry is positive and
banking lending activities are expected to remain firm this year.
11. As announced last week, at
end-2005, total assets managed by Singapore-based financial
institutions was reported to be S$720.4 billion, a 26% growth over
S$572.6 billion reported at end-2004.
12. The corporate debt market saw
continued positive developments. While SGD corporate debt issuance
slowed slightly as a result of the interest rate environment, the
market saw increased diversity in issuer profile in the past year,
with first-time issuance from a number of Middle Eastern and Latin
American entities. Reflecting the sophistication of investors,
structured debt continued to account for a significant proportion of
SGD debt issuance. Issuance of commercial mortgage-backed securities
remained strong on the back of a healthy REITS market. Local asset
managers have also become more active in Collateralised Debt
Obligation (CDO) origination. Last year, the market saw the issuance
of a US$1 billion asset-backed securities CDO. This year, we expect
a continued strong pipeline of SGD debt issuance as SGD-swap spreads
have widened. In the first quarter of this year, SGD issuance
reached $7.4 billion, almost twice the level a year earlier.
13. With the growth in wealth
management and an increase in more sophisticated investors, we see
growing interests in alternative asset classes. There has been a
significant growth in the demand for alternative investments such as
hedge funds, real estate and infrastructure investments and
commodity derivatives.
Supervisory Developments
14. Along with these developments of financial sector activity,
we need to ensure that our regulatory framework remains appropriate
and robust.
15. Trust companies have now been
brought under MAS' regulatory framework. This ensures a unified
regulatory oversight of trust services, private banking and wealth
management activities. A new Payments System Oversight Act was
passed by Parliament earlier this year. This new Act will enable us
to better regulate the systemically important payments systems.
16. On the supervisory front, we
continue to work on the Common Risk Assessment Framework and
Techniques (CRAFT). A single risk assessment framework seeks to
harmonise the risk assessment language and methodologies and ensure
that similar risks are assessed consistently across the industries.
CRAFT is designed to be sufficiently flexible to cater to the
different nature, scope, complexity and risk profile of the
different classes of institutions that we supervise across our
various departments.
17. We are also strengthening our
internal quality assurance activities for risk-based supervision of
financial institutions so as to further improve the quality and
consistency in the implementation of risk-based supervision within
and across different sectors. We plan to publish more information
about MAS' risk-based supervision, including CRAFT, in a monograph.
This is to help the industry better understand our supervisory
approach.
18. As you know, locally incorporated
banks will migrate to Basel II in January 2008. We have been working
closely with them to assess the impact of Basel II and determine how
best to implement the proposals in Singapore. In addition, we are
working with an industry group to look into the disclosure
requirements and regulatory reporting under the new framework. MAS
has initiated a supervisory validation process for banks that intend
to use the more sophisticated approaches for credit risk
measurement. This would involve conducting onsite visits to assess
the banks' risk management practices and governance framework.
19. We expect a smooth transition to
the new framework and we believe that Basel II implementation will
enhance the banks' risk management capabilities. This will in turn
sharpen the banks' competitive edge, so that they will be better
able to identify and manage the risks and seize the opportunities in
a financial services market that is becoming more globalised and
complex.
20. Let me now move on briefly to our
accounts. Compared to the previous year, MAS posted a lower net
profit of $1,216 million for the year as global interest rates rose
and the Singapore dollar appreciated against the major currencies.
Total expenditure rose $255 million to $812 million, mostly due to
higher interest rates and investment expenses.
Singapore 2006
21. In less than two months, Singapore will host the Annual
Meetings of the Boards of Governors of the International Monetary
Fund and the World Bank Group. As co-chair of the organising
committee, we have devoted much time, effort and resources in
putting this significant international event together. As this will
be the first Annual Meetings to take place in Asia since 1997,
Singapore 2006 will be an important opportunity for us to
demonstrate the significant developments and structural reforms that
have taken place in this region since the Asian Financial Crisis.
With the rise of China and India, and the resurgence of ASEAN, it
will be timely for the international financial community to gather
again in Asia to review and discuss developments, exchange ideas and
explore collaborations.
22. Singapore's role in hosting the
2006 IMF-WB Annual Meetings also reflects our role as a global
citizen in supporting global developments and our commitment to the
international financial community.
23. To conclude, we remain focused on promoting sustained
non-inflationary economic growth,and a sound and progressive
financial sector.
Source:
www.mas.gov.sg News 20 Jul
2006
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Singapore's GDP growth for 2006
likely to be 5% to 7%
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