PERCEIVED risks from money laundering and terrorism financing (ML/TF) to Singapore’s financial system have risen, according to the Monetary Authority of Singapore’s (MAS) report on Monday (Nov 27).

A survey conducted by the MAS found that financial institutions (FIs) in Singapore perceived money laundering risks as the fourth biggest risk as at October this year. This is up from seventh place half a year ago.

This comes as Singapore busted one of the world’s largest money laundering cases worth S$2.8 billion in August. Authorities arrested at least 10 individuals believed to be connected to the case.

The FIs surveyed also believed that ML/TF risks would continue to be a major challenge for global financial hubs given their open capital accounts and large gross capital flows, MAS said.

Meanwhile, monetary policy tightening, geopolitical, technology and cyber risks were the consecutive top three most cited and impactful risk categories for FIs in Singapore.

Corporate impact

In the report, most Singapore Exchange-listed corporates were also assessed to be resilient against an interest rate and earnings shock, with adequate cash reserves to buffer against these events.

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The findings come after MAS applied a stress test on these corporations by assessing their responses, based on their Q2 2023 financial positions, against a 10 per cent decline in earnings and a 300 basis point rise in interest rates.

The test found that the share of firms-at-risk – whose interest coverage ratio is less than one – would rise to 34 per cent from 31 per cent.

The percentage of overall corporate debt held by these at-risk firms would go up from 5 per cent to 10 per cent.

After taking into account net cash reserves and hedging, however, the share of at-risk firms would fall from 34 per cent to 15 per cent; and at-risk debt would fall from 10 per cent to 8 per cent.

While most firms have been able to cushion the impact of the challenging macrofinancial environment thus far, the central bank noted that a segment of highly leveraged firms with thinner buffers may come under strain.

That is assuming interest rates remain high for a prolonged period and macroeconomic weaknesses persist.

“Given the heightened macrofinancial uncertainties, firms should be prudent in financial management, and remain vigilant to downside risks,” it added.

Banking resilience

A stress test conducted by the MAS also found that Singapore banks were well-capitalised to weather lower-than-expected growth and a global banking crisis, given that their capital buffers were well above regulatory minimums.

In its test, the central bank applied an adverse scenario where advanced economy central banks tightened monetary policy further. It also simulated for spillover effects in the region.

Under these conditions, domestic systemically important banks were projected to have their aggregate Common Equity Tier 1 (CET1) capital adequacy ratio fall to 9.7 per cent in the second year after the adverse conditions were applied. This is still higher than the regulatory requirements of 6.5 per cent, and remained so even after second-order solvency-liquidity feedback effects were taken into account.

“The modelled results show that banks have adequate capital buffers to cushion the additional impact arising from these transmission channels under the adverse scenario,” said MAS.

“MAS will continue to refine and augment its capabilities to ensure that its stress tests remain useful and relevant as a tool for risk assessment and management.”

As at Q3 2023, domestic systemically important banks had an aggregate CET1 capital ratio of 14.1 per cent. This is lower than the levels reported in Q4 of 2021 and 2022 – at 14.7 per cent and 14.5 per cent respectively – but remains well above the regulatory requirement.