SINGAPORE, Sept. 22 (Xinhua) -- A sharp pullback in artificial intelligence (AI)-related investment, elevated energy prices and renewed trade tensions could pose risks to Singapore's financial stability, although corporate, household and banking sectors remain resilient, the Monetary Authority of Singapore (MAS) said on Tuesday.
The central bank said in its latest Financial Stability Review that despite energy supply disruptions and elevated oil prices that have raised firms' input costs, corporate balance sheets are generally sound.
"Looking ahead, a key risk factor is a possible reassessment of AI-related asset valuations, which could prompt a retrenchment in related investments, weighing on the revenues and earnings of exposed firms," said the MAS.
However, its test showed that most firms were able to weather the shock, supported by their earnings and cash reserves.
The MAS also said the ongoing energy supply disruptions have kept oil prices elevated, placing some strain on household budgets.
"Looking ahead, there are also risks that a sharp retrenchment in AI-related investment could weigh on global growth, business investment and semiconductor demand, adversely impacting household incomes and employment," it added.
However, it noted most household borrowers remain resilient under a severe stress test, though a small share of borrowers could face liquidity strains.
Meanwhile, risks to the outlook include the possibility of a pullback in AI-related investment that could harm growth prospects and impact corporate profitability, another round of trade tensions, or a further energy shock arising in the Middle East, said the MAS.
Although asset quality could come under some pressure in these scenarios, credit risk is expected to stay under control.
Its stress test also affirms that Singapore banks have sufficient capital buffers to weather an adverse scenario driven by a downturn in the AI-led global growth cycle amid tensions in the Middle East. ■
