Moody’s Lowers Outlook on Singapore Banking Industry to Negative

  • Sees weaker operating conditions for banks, softer outlook
  • Warns of risks to profitability from high corporate leverage

Moody’s Investors Service said it revised its outlook for Singapore’s banking industry to negative from stable, amid growing risks to profitability from exposure to energy-related industries and high levels of corporate leverage.

Conditions for the lenders are worsening because of slower economic and trade growth in Singapore as well as more broadly in Asia, Moody’s said in an e-mailed statement. The ratings firm expects economic growth in Singapore to slow to 1.6 percent in 2016 and 1.5 percent in 2017, below the average of 4.5 percent between 2011 and 2014.

A slowing domestic manufacturing sector, and weaker economic activity in its key trading partners, including Greater China and Malaysia, should represent significant challenges for Singapore, Moody’s added.

As a result, the lenders’ asset quality may worsen slightly, with problem loans rising from a “very low” 1.1 percent of gross loans at the end of March, the ratings firm said.

“The large banks are highly exposed to energy-related industries and shipping. Despite some rebound in energy prices so far in 2016, the quality of such exposures will deteriorate, because many of these firms are still restructuring their finances,” Moody’s said.

On the other hand, Moody’s said Singapore banks have solid capital ratios, strong capital buffers and government support. The buffers should remain unaffected by higher credit costs because the banks’ income should be sufficient to cover rising loan-loss provisions, Moody’s said.

Moody’s already has a negative outlook on the five individual banks it rates in Singapore, including local players DBS Bank Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd.

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