The jurisdiction's financial watchdog flags a number of risks, such as protectionism and the pain of rising US interest rates, but is broadly confident its banks can take the strain.

Singapore is not in the direct firing line from US-China tariffs and a ratcheting up of protectionism in the region, but it is unlikely to be unscathed from these forces, the jurisdiction’s financial regulator has warned.

“While trade tensions have had limited impact on Singapore thus far, the negative spill-overs could weigh on future corporate profitability through lower earnings. Tightening financial conditions could also strain the debt servicing ability of over-leveraged firms,” the Monetary Authority of Singapore said in a report.

The report came out a day after Singapore’s authorities reported slower gross domestic product growth. Q3 growth came in below expectations, according to the Ministry of Trade and Industry. Weaker manufacturing and slower demand took a toll on the numbers. GDP rose by 2.2 per cent in the third quarter on a year-on-year basis, slower than the 2.6 per cent increase in the advanced estimates report a month ago and the 4.1 per cent growth in the second quarter. Economists were expecting a growth of 2.4 per cent.

MAS urged banks and other entities to become more resilient against potential economic and other shocks.

“Firms should exercise financial prudence and take steps to reduce balance sheet vulnerabilities. An abrupt tightening of global financial conditions could accentuate foreign currency liquidity risks in the Singapore banking system. Banks need to actively monitor and manage their foreign currency liquidity risks as they expand their cross-border lending activities,” it said.

MAS’ cautious comments come at a time when banks such as Goldman Sachs and groups such as the Paris-based OECD, the club of industrialised nations, have warned of slowing growth.

Rising US interest rates have turned up pressure on emerging market countries, such as those in Asia, who have borrowed in dollars and therefore see their repayment costs rise. Coupled with worries about protectionism from the Trump administration triggering currency falls, this represents a “double whammy” hit to markets, MAS said.

“Tightening global financial conditions have caused capital outflows from the region, and could create further pressures on regional currencies and the debt servicing abilities of sovereigns, corporates and households,” the organisation said in its Financial Stability Review for November.

MAS said Singapore’s banking system is “resilient”, reporting loan growth and an improvement in asset quality. The regulator and de-facto central bank – which operates a peg against the US dollar – said it did not “observe any broad-based domestic credit overheating at this juncture”.