Fitch gives Singapore central bank two thumbs up for overseeing sector

Local regulatory standards are also evolving.

The prudential and regulatory framework for banks in Singapore remains strong, and the country's central bank, the Monetary Authority of Singapore, continues to be proactive in its oversight of the banking sector.

According to a release from Fitch Ratings, local regulatory standards are also progressing apace with global best practices, which Fitch has mentioned in a new report on the Singapore banking system and prudential regulations.

Singapore banks have maintained high capitalisation under the MAS's Basel III capital rules, and this is likely to remain one of their rating strengths.

Minimum capital ratios required by the MAS under Basel III - at 2pp above those prescribed by the Basel Committee - are higher than those in many other jurisdictions.

Here’s more from Fitch Ratings:

By 1 January 2019, the three local banks - DBS Bank Ltd., Oversea-Chinese Banking Corp and United Overseas Bank Limited - will need to meet a minimum core Tier 1 capital adequacy ratio (CAR) of 9.0%, Tier 1 CAR of 10.5% and total CAR of 12.5%.

Fitch estimates that they already meet these requirements on a fully implemented basis as of end-June 2014.

The three banks' funding positions are also sound, underpinned by their stable local deposit franchises.

This places them in good stead to meet the MAS's new liquidity coverage rules which will apply from 1 January 2015.

Singapore's competitive and mature domestic market continues to motivate the local banks to diversify and expand overseas.

Loan growth has been high in recent years and Fitch expects regional growth to gradually increase the banks' risk profiles, as operating and regulatory environments in many emerging markets are still developing and the Singapore banks have modest capacities to compete with more entrenched domestic banks in these countries.

However, the banks have generally been disciplined in their offshore expansion thus far.

Due to the high property lending exposure of the local banks, Fitch expects the MAS to maintain a close watch over this segment.

A series of macro-prudential cooling measures have been introduced since 2009 to curb rising housing loans and property exposure, which were driven by low interest rates and rising household wealth.

These measures, together with the banks' satisfactory underwriting standards, should serve to mitigate the buildup of systemic risk due to property exposure in the banking sector.