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Asian banks sound but US rate hike ‘poses risk’

SINGAPORE — A hike in United States interest rates and the rise in the greenback could place consumers and companies in Asia at risk but banks in the region should be able to withstand this double whammy, the head of the Monetary Authority of Singapore (MAS) said yesterday.

Monetary Authority of Singapore. TODAY file photo

Monetary Authority of Singapore. TODAY file photo

SINGAPORE — A hike in United States interest rates and the rise in the greenback could place consumers and companies in Asia at risk but banks in the region should be able to withstand this double whammy, the head of the Monetary Authority of Singapore (MAS) said yesterday.

“Rising interest rates will increase the debt servicing burden of Asian households and corporates, especially those who have taken on high levels of debt at low rates. Asian corporates with large unhedged US dollar borrowings could face increasing stress as a strengthening dollar undermines their ability to repay loans,” MAS managing director Ravi Menon said at the 2015 Symposium on Asian Banking and Finance.

“Banks in emerging Asia could face higher non-performing loans. They could also face reduced US dollar funding if there are large capital outflows from Asia. But their liquidity and capital positions are generally sound and they should be able to weather this,” he said.

At the same event yesterday, San Francisco Federal Reserve President John Williams said the US central bank would likely raise interest rates this year, adding he expected above-trend growth in the US for the rest of 2015 after a weak first quarter.

Against the backdrop of the ongoing recovery in the G3 economies (US, Eurozone and Japan) and the slowdown in Chinese growth, Mr Menon said overall growth in emerging Asia will remain firm at 6 per cent this year.

However, he warned: “The divergence in monetary policy settings among the G3 economies (US, eurozone and Japan) could pose risks to financial stability that could also potentially hurt growth. The anticipated normalisation of interest rates in the US against continuing quantitative easing in the eurozone and Japan will be reflected in sharp movements in exchange rates and bond yields. This is not a prediction, it is already happening.”

Despite the near-term risks, Mr Menon voiced optimism over the medium to long-term outlook for Asia.

“As populations age and productivity growth slows, potential growth rates around the world are projected to moderate. But Asia is poised to remain the fastest growing and most dynamic region in the world,” he said.

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