Our major banks, on average, maintain a healthy Common Equity Tier 1 capital ratio that is more than double the minimum requirement of 6.5%. Their liquidity buffers are healthy, with all-currency and Singapore Dollar liquidity coverage 6 / 15  BIS central bankers' speeches  ratios remaining above the minimum regulatory requirements. MAS conducted a stress test against an adverse scenario that is consistent with what we might possibly see in the current COVID crisis. Our stress scenario assumes that over a two-year period: The level of GDP declines by close to 6%, point to point over the two-year period. This basically means we go through a recession in 2020 and 2021; Unemployment rate rises to around 6%; Equity and oil prices fall by more than 30%; and Property prices fall by more than 35%. These are stress scenarios, not forecasts. The stress test showed that our major banks and insurers remain resilient against this very adverse scenario. The banks’ capital ratios, while diminished, remain above MAS’ minimum requirements. The insurers have pre-emptively bolstered their capital positions and have drawer plans to restore their capital position under severe stress. Sustaining the safety and soundness of our financial sector is critical for supporting the broader recovery of the real economy. Therefore, notwithstanding the encouraging stress test results, MAS has been in close discussions with the banks and insurers on their capital management plans. We want to ensure that they retain adequate capacity to continue providing financial services to support the economy even in extreme tail risk scenarios.

The fiscal stimulus is considerable and there are signs of an upturn in employment and consumption. But new and larger outbreaks of infection in several states pose significant downside risks. Closer to home, the ASEAN-5 economies [2] are expected to contract by 2.6%. They will benefit from the emerging recovery in manufacturing; while the collapse in tourism will weigh more on some economies. The recovery will also be uneven across industries, ranging from L-shaped to U-shaped to V-shaped. Activities with greater “in-person” interactions – such as hospitality, hotels and restaurants, and tourism – may have to reopen later, observe strict safe-distancing measures, and operate at much lower capacities. Capital-intensive manufacturing and trade-related services could recover faster as demand returns but they might still face frictions in their supply chains. Modern services, such as ICT and financial services, will probably do best given their ability to serve customers and carry out transactions through digital means. While a strong short-term growth bounce is plausible, the longer term recovery is likely to be weak and gradual. People may be slower to return to previous patterns of work as long as the virus is still circulating. Higher unemployment and greater job insecurity will weigh on household spending, particularly once income support measures start to taper off. Businesses are likely to hold back investments in view of heightened uncertainty and this will in turn dampen the strength of the recovery. There may be lasting shifts in demand patterns and the associated disruptions in business activities.