Assets Cushion Recession Pressures

This is an interesting way of putting it.

Today, The Straits Times reported that French investment bank BNP Paribas has theorized that the current recession seems less painful than previous downturns could be partially attributed to the fact that Singaporeans are richer this time around because of their asset holdings.

While consumers in the United States and Europe spent with abandon and piled up loans in the boom years, Singaporeans saved, invested and paid down debt. Last year, as the world succumbed to the financial meltdown, Singapore households were sitting comfortably on six times more assets than liabilities, according to new estimates by
This means that for every $$1 (RM2.47) of debt they owed in mortgages or other loans, households owned S$6 in assets such as stocks and property.

This was down slightly from 2007 levels, when assets outnumbered liabilities by seven-to-one, according to Department of Statistics’ data. But it is still an advance on 2000 — before the dot.com bust, when the ratio was five-to-one.

Since then, Singaporeans have seen the value of their asset holdings soar on the back of stock and property values.

And although they became wealthier, Singaporeans refused to splurge on credit, keeping debt at roughly the same level throughout the period.
Between 2000 and last year, Singaporean households’ assets jumped 60per cent to S$1.12trillion, but liabilities rose only 28per cent to S$178.4billion.

Their net wealth — assets minus liabilities — rocketed to S$942billion last year, according to BNP”s estimates. This is more than double the S$450billion Singaporeans had in 1997 before the Asian Financial Crisis.

“What this means is that Singaporean households entered the 2008 recession in very good shape with a huge buffer,” said BNP Paribas chief economist Chan Kok Peng.

A substantial part of this buffer was in cash, with Singaporeans careful to put a large proportion of their assets in the bank — even though property and stock markets have been roaring.

The result is that for every S$1 of liabilities held last year, households had S$1.13 in cash deposits.

In sharp contrast, US households only had 50 cents of cash deposits for every US$1 in liabilities and UK households 73 cents.

Apparently, despite being mired in its worst-ever downturn, Singapore still has a large kitty of cash. Singaporeans are sitting on S$301billion of cash deposits in the bank, in addition to S$67billion in Central Provident Fund accounts that can be used to buy either property or stocks, according to the latest figures for May.

This totals a “staggering” S$368billion — 143per cent of Singapore’s gross domestic product — said Chan.

It is good news for the banking system which, added Chan, depends on household deposits for its main source of funding.

But, he and other economists tempered this upbeat picture by cautioning that the data may not be representative across-the-board, as it does not take into account the different income levels of Singaporeans.

“Those who have recently become unemployed or have mistimed their property purchases at the peak of the cycle and leveraged up beyond their means, are likely to be a source of concern for their bankers,” said Chan.

Citigroup economist Kit Wei Zheng suggested that some of the data could be skewed by foreigners, who may have deposited a lot of cash or parked their money in assets here, but left their liabilities at home.

However, Housing Board residents — who make up 85per cent of Singapore homeowners — are likely to be less financially stressed than others, given that HDB flat prices have held up fairly well in the current recession.

So, what about Malaysia? Is this theory also applicable here?