Moody’s investment service said Tuesday (8 July) that its outlook on Singapore’s banking system remains “negative” for the next 12 to 18 months.
Moody’s noted in a statement that accompanied the report “Banking System Outlook Singapore,” that the risk of rising interest rates as well as potential increase in the number of problem loans are some of the factors that prompted the negative outlook which remained unchanged since July 2013.
In a statement, Moody’s Vice President and Senior Credit Officer Eugene Tarzimanov, said: "Because the banks have rapidly grown both their domestic and cross-border loans in recent years, we expect a moderate increase in problem loans, as interest rates rise, due to the US Fed’s expected raising of policy rates, and as asset prices are likely to fall.”
The report looks at Singapore’s banking system in terms of five factors: operating environment, asset quality and capital, funding and liquidity, profitability and efficiency and systemic support.
According to the report, if interest rates rise, the quality of the banks’ corporate loans in several emerging Asian economies will deteriorate. It noted that local banks’ consumer loans in Malaysia and Thailand are exposed to risks, due to the high and increasing levels of household debt in the two economies.
“By contrast, the quality of their mortgage and consumer loans in Singapore will be supported by the significant wealth levels of Singapore borrowers, as well as their low average loan-to-value ratios, and the recent moderation in property prices, largely as a result of the cooling-off measures introduced by the Monetary Authority of Singapore,” the report said.
Notably, Moody’s rates Singapore’s three major banking groups – DBS Bank Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) – which together accounted for around 60 percent of domestic system assets at end-2013.
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this and other stories, email nikki@propertyguru.com.sg
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