By Fiona Chan

THE Monetary Authority of Singapore (MAS) will continue to step up its supervision of banks and financial markets to ensure they stay resilient in this and future financial crises, said Senior Minister Goh Chok Tong.

'Although the global financial condition has stabilised, the situation is fragile and we need to remain vigilant,' said Mr Goh, who is also MAS chairman, in an addendum to President S R Nathan's address at the opening of Parliament.

While banks here have not been directly affected by the global financial meltdown, they are still susceptible to 'risks of contagion' from problems elsewhere and may also be hit by 'second-round effects of the economic slowdown'.

To maintain the soundness of the financial system, the MAS will continue to work on strengthening the risk management systems and processes of banks.

The central bank will conduct 'thematic reviews' and stress tests to assess the vulnerabilities of financial institutions and fine- tune measures for them to 'mitigate financial stresses', said Mr Goh. These include building up prudential capital buffers for banks that can help to absorb losses when necessary.

For foreign banks that operate here, the MAS will also 'intensify' discussions with the regulators in the banks' home countries about their safety and soundness, he added.

The MAS will also improve its crisis management abilities to minimise fallout in the event of a bank actually failing here.

The central bank also plans to ramp up its 'macro-prudential surveillance' of the entire financial system, said Mr Goh.

It will do this by refining its 'market intelligence' and by analysing broader risks to the system, such as how risks in one segment of the financial system can be transmitted to others.

Given the uncertain environment, the MAS will include more real-time data into its surveillance framework to enhance its projections relating to the economy.

In addition, the MAS is studying proposed revisions to capital adequacy frameworks for financial institutions, and will also finalise changes to the rules of selling investment products to make them fairer.

All this will help Singapore's financial centre emerge stronger after the crisis, said Mr Goh.

It can also take on a new role as a global destination for fund-raising, risk management and trading of local currency securities. With global banks adopting a cautious outlook for some time, Asian firms are using domestic loan and regional capital markets for their funding needs and Singapore can ride this trend.

At least one bank welcomed Mr Goh's views on tightening financial supervision.

'We recognise the importance of a robust risk management framework in managing the dynamics of changing markets, including stress testing across all material risks of our bank,' said OCBC Bank's group chief risk officer, Mr Gilbert Kohnke.

OCBC has had a credit stress testing policy in place since 2005 and it is 'continually enhancing the stress testing processes, approaches and methodology to include an expanded number of stress test scenarios'.

This article was first published in The Straits Times.