Permission To Panic, Sir

Wait a minute, this has to be deja vu. Barely a week ago, when Moody's Investors Service downgraded the outlook on Singapore's banking system from "stable" to "negative", the Monetary Authority of Singapore (MAS) was quick to come up with an assurance that everything is honky dory. Don't worry about the interest rate hikes, go on buying those properties.

Now (yesterday), MAS is saying the rising household debt in the city state is worrying, and it is “important to act now to limit build-up of leverage”. MAS managing director Ravi Menon reported that 5 to 10 per cent “have probably over-leveraged on their property purchases” — one couple was reportedly granted a new home loan of $400,000 based on a loan repayment schedule amounting to 90 percent of their $6,000 total monthly income. If mortgage rates were to rise by 3 percentage points, MAS warned that the proportion of borrowers at risk could reach 10 to 15 per cent. Which was basically the reason that prompted Moody to revise it's assessment ("Hike in rates and fall in property prices may pose risks to financial stability").

But the house owners are not the only ones holding on to assets founded on shifting sands.

According to its annual report, the MAS had paid-up capital and reserves of S$24.539 billion as at March 31, 2013, down from $35.152 billion of the previous financial year. The Singapore central bank actually made a net loss of S$10.613 billion in fiscal 2012/13, a drastic reversal of fortunes compared to the net gain of S$2.771 billion in the previous financial year. The only saving grace is that its investment returns over the year were more than offset by the strength of the Singapore dollar (which is adjusted periodically by same MAS to "combat imported inflation").

“This is an issue of reporting currency. If we had reported our profit and loss in international currency, it would show a healthy profit,” was how Mr Menon casually explained away the red ink. Whatever. The bottom line is that a big chunk of the MAS paid-up capital and reserves has been chewed off. No MAS official was harmed in the making of the financial report.

Interesting aside: Total MAS assets rose by S$21.21 billion to S$340.405 billion, while current capital and reserves declined to S$24.539 billion, giving total liabilities of S$315,866 billion. Accounting 101 says gearing ratio is debt (total liabilities) divided by equity (capital and reserves). Look, someone else is also highly leveraged.

It looks like the new chairman of Tesmasek Holdings, Lim Boon Heng, may have to stock up on those Kleenex tissues. Temasek and MAS are supposed to be separate entities with distinct roles and mandates, and distinct management teams, but the incestuous links are harder to define.