At any briefing held in conjunction with the release of the Monetary Authority of Singapore’s (MAS) annual report, the central bank would usually provide an economic outlook and update on monetary policy. But at this year’s briefing for the 2020/21 annual report, one thing stood out clearly: cybersecurity.
Ravi Menon, managing director of MAS, warns that there are cyber threats that the financial sector needs to pay keen attention to. For one, cyber-attackers are now exfiltrating information from their victims, in addition to corrupting a victim’s data using crypto-ransomware.
Secondly, cyber-attackers are targeting major third-party IT vendors to amplify the coverage of their attacks. For instance, supply chains are hacked to infiltrate the networks and systems of multiple entities.
Menon warns that the incidence, scale and complexity of cyber-attacks have continued to mount. He cites the recent attacks on companies around the world, such as Colonial Pipeline, Microsoft Corp and Accellion. He also highlights the cyber-attack against SolarWinds as an example of criminals targeting major third-party IT vendors.
There have not been any local cases so far, Menon adds. But he warns that this does not mean it will not happen. As such, MAS has instructed financial institutions, including banks, insurers and asset managers, to review the adequacy of their internal IT controls, he notes. This also includes incident response and business continuity plans to fend against the latest ransomware threats.
“This is an area of deep concern. It is a growing risk,” Menon said at the June 30 media briefing. “The financial sector needs to be on guard. We’ve been working very closely with the industry on a variety of measures to strengthen cyber defences.”
On the economic outlook, Menon says Singapore’s GDP this year could exceed the upper end of the 4% to 6% forecast range, barring a setback to the global economy. This is despite the fact that the official forecast was maintained at that range considering the deterioration of the domestic Covid-19 situation and the consequent Phase Two (Heightened Alert). MAS, together with the Ministry of Trade and Industry, will review the forecast range in August when preliminary estimates for 2Q2021 GDP are available, he says.
According to Menon, the trajectory of the economy depends largely on the “contest” between the coronavirus and the rate of vaccination. “The faster we can vaccinate people, the faster we can return to normalcy,” he says. “And I think once we’ve reached a threshold of vaccination in the 70% or 80% range, there’s a lot more scope to reopen the economy and to carry on… in an endemic situation.”
For now, MAS continues to maintain its loose monetary policy stance. Menon points out that the central bank had twice reaffirmed a 0% appreciation path for the nominal effective exchange rate policy band, which was adopted in March last year. “While the risk of persistent disinflation has receded, core inflation remains below its historical average and the current policy stance remains appropriate for now,” he says.
Menon highlights that Singapore’s financial system has so far remained stable amid the pandemic. Banks entered the crisis from a position of strength and have been a source of stability and support for individuals and businesses throughout the crisis, he says. Although default rates have seen a slight uptick, the banking system’s non-performing loan ratio has remained largely stable at around 2.4% as at March 31, he adds.
Menon says MAS is conducting additional stress tests to assess whether it is necessary to extend the current dividend restrictions on local banks and finance companies. “MAS recognises that problem loans can take time to surface,” he says.
Meanwhile, Menon notes that MAS has yet to decide whether it will issue central bank digital currencies (CBDCs) for retail, because there is “no compelling use case” now. This comes as several countries and regions are experimenting with CBDCs or looking to launch them soon. CBDC is digital money that is not held in physical form. It can either be in token form or account based.
Notably, China is currently testing its own CBDC — the digital renminbi — which enables consumers to make payments using their mobile phones. In Europe, the European Central Bank is planning to launch the digital euro within the next five years. In the US, the Federal Reserve announced that it would soon release a discussion paper on digital payments, including CBDC.
To better understand the complexities of retail CBDCs, Menon says MAS has recently launched a global challenge for retail solutions. FinTech companies, financial institutions and solution providers have been invited to submit proposals aimed at enhancing payment efficiencies and promoting financial inclusion. “So, we are actively looking at retail CBDCs to understand the technology better [and] the policy issues much better,” he says.
Photo: Samuel Isaac Chua / The Edge Singapore
