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The Monetary Authority of Singapore (MAS) published a paper on banks' underwriting and corporate lending businesses on Monday. While the central bank did not observe a deterioration in underwriting standards, it cautioned the country's lenders about the increasing use of working capital and bullet loans.
The MAS noted that a low interest rate environment, coupled with abundant liquidity, has exacerbated competition and resulted in lower returns for lenders. This, it said, could lead some firms to relax structures and covenants on debt or under-price risk.
"Most banks had internal thresholds for minimum risk-adjusted returns on loans (internal hurdle rates)," it said in the paper. "However, banks occasionally priced loans below their internal hurdle rates for strategic reasons...