Mr Chua Kheng Wee Louis asked the Prime Minister (a) what is the current size of local banks’ exposure to commodity trading and commodity financing; (b) whether MAS has been approached and is prepared to provide liquidity support to commodity trading firms; and (c) what is the assessment by MAS of the risks to the financial sector arising from commodity market volatilities and ongoing lockdowns across China.
Mr Tharman Shanmugaratnam (for the Prime Minister): MAS has been closely monitoring developments in the international commodity markets and the broader external environment, and their potential impact on Singapore’s financial system.
Singapore’s local banking groups had an aggregated commodities financing exposure of S$109 billion as at end 2021, which is around nine per cent of their total credit exposures.
In the face of sharp spikes in global commodity prices, commodity trading firms have increased their demand for working capital to meet higher margin requirements. They have had to use more derivatives more widely to hedge their exposures against price volatility. Firms which do not manage their risks well may run into difficulty in servicing their loans.
As for China, the mobility restrictions are expected to have some impact on production and supply chains. There is uncertainty over how long these restrictions would persist and their spillover effects on commodity markets and regional economies, including Singapore.
Banks in Singapore have understandably stepped-up monitoring of their exposures to borrowers that might be adversely affected by these developments. Measures taken include performing stress tests on borrowers’ balance sheets to assess the impact of supply chain disruptions, heightened commodity prices, and energy supply constraints. MAS will continue to engage key banks to ensure they are working with borrowers to manage these risks as the situation evolves.
There is no need for MAS to provide liquidity to commodity firms, and MAS would at most times prefer not to engage in direct provision of liquidity to corporate borrowers. The banking system continues to provide credit to the commodity trading sector to meet firms’ liquidity needs. Enterprise Singapore’s interactions with the commodities sector also suggests that financing conditions for commodity traders remain stable. Commodity traders also tap on a diverse pool of financing, including banks overseas and international capital markets.
Prime Minister’s Office
9 May 2022