Here’s why high exposure to foreign currency is a bane for Singapore banks

Their dependence on foreign funding and external debt levels makes them ‘more vulnerable’ amidst the trade wars.

Singapore banks could likely be ‘more vulnerable’ to risks from additional instability in global markets amidst the trade wars, Fitch Ratings said.

“Markets with higher dependence on foreign funding and external debt levels will be more vulnerable,” the firm explained.

They noted that Singapore, along with Hong Kong, have higher foreign-currency exposure as both are considered financial centres in the Asia Pacific region.

In general, the firm noted that the looming global trade tensions could hurt the operating environment in APAC banks through reducing for export finance, adding to credit risks for affected firms, and dragging on broader economic growth

“Most banks are well-positioned to deal with effects that come through these channels, but could be more exposed if trade wars add significantly to market risks against the backdrop of global monetary tightening,” the firm explained.

Meanwhile, the firm said that it is unlikely that tariff measures will significantly weaken the broader economic environment in most APAC markets.

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