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.
Unlike the 1980s, the build up of debt in recent years has been in an environment of low inflation and low interest rates. The interest ratio, that is, interest expenditure as a share of disposable incomes, is much lower now than it was then. Although the level of households' debt ratios is not necessarily worrying, it is nevertheless the case that a borrowing level rising by more than 10 per cent a year is not sustainable in the long term. In the long term it needs to come down and be more in line with nominal disposable incomes. The Riksbank is assuming that household borrowing will continue to increase, but at a slower rate than before. The fact that interest rates have been raised contributes to this, as does the fact that economic activity is entering a calmer phase. The interest ratio has recently begun to rise but is still at an historically low level. The expected  BIS Review 60/2008  1  slowdown in household borrowing will mean that the interest ratio also increases at a slower rate in future (see figure 3). The chances are good that household borrowing and house prices will have a soft landing. Although borrowing is still increasing at a rapid rate, there has nevertheless been some slackening and this is expected to continue. House prices fell slightly in the first quarter of this year compared with the final quarter of last year. However, on an annual basis the increase was just over seven per cent.