Business

Rise in NPLs in hard times natural: MAS chief

The weaker economy and fallout from low oil prices spawned a rise in non-performing loans (NPLs) that dragged down profits at many Asian banks in the past year.

But it is only natural for NPLs to be rising if banks are doing their jobs right, Singapore's top central banker said yesterday.

"This may be odd for a regulator to say - but if NPLs did not rise at all during difficult times, then the banks are probably not lending enough or taking on sufficient risk to promote business expansion or enterprise," said Mr Ravi Menon, Monetary Authority of Singapore (MAS) managing director.

Delivering the opening remarks at the annual Symposium on Asian Banking and Finance, held at the MAS Building, he said NPLs here have risen in the risky oil and gas (O&G) sector, but urged that NPLs be viewed in the right perspective.

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"Banks are in the business of intermediating risk. When risks materialise, as they sometimes do when those who borrow get into difficulties, NPLs must rise."

The fact is that NPLs' rise is less of a concern than whether that rise is manageable, and if problem loans are being monitored closely and classified prudently, he said.

"Our banks' exposure to the O&G sector is contained. The banking system's aggregate exposure to the O&G is around 10 per cent.

For local banks, this figure is lower at 6 to 7 per cent. Banks in Singapore have also made adequate provisions for their overall NPLs."

But in the medium to long term, the prospects for Asian banks are good, chiefly because the prospects for Asian economies are good.

High incomes will drive demand for financial services, leading to more opportunities in banking, Mr Menon said. -MARISSA LEE

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