Singapore banking system stable outlook

Moody's says that the outlook for Singapore's banking system is stable, and expects banks to continue to record solid profits during the next 12 to 18 months.

"The stable outlook reflects the good asset quality, sustainable profitability, strong capital, and ample liquidity among Singapore's three domestic banking groups," says Christine Kuo, a Moody's Vice President, and the lead analyst for Singaporean banks.

Moody's expects loans to grow around 10% and net interest margins to bottom out in 2H2011.

"Growth in overseas markets will alleviate pressure on net interest margins," says Kuo.
Kuo was speaking on the release of Moody's latest outlook on the Singaporean banking system, which she authored.

The report notes moderate growth in fee and commission income and moderate fluctuation in investment and trading income. It also notes strong capital levels, which will accommodate Basel III and provide a strong enough buffer for stress scenarios. A low reliance on wholesale funds and a very liquid balance sheet will reduce funding risk in the event of market turmoil.

"In our view, the banks' funding positions will remain resilient in a challenging market, as they did in the recent global financial turmoil, and compliance with Basel III liquidity ratios will go smoothly for the three banking groups," says Kuo.

However, on the downside, a weakening in the global economic and financial recovery could drag down the growth of Singapore's export-dependent economy. "This would adversely affect the banks' exposures to the manufacturing and trade-related sectors," says Kuo. "In addition, should the government fail to keep property prices in check, the country's already booming real estate market could develop into a bubble that could adversely affecting the banks' real estate exposures," she adds.

Moody's rates four banks in Singapore: DBS Bank Ltd; Oversea-Chinese Banking Corporation Ltd; United Oversea bank Ltd; and Bank of Singapore, which is a fully owned subsidiary and the private banking arm of OCBC.

The stable outlook for the banking industry is consistent with the rating on the Singaporean government and the rated Singaporean banks.

The report is entitled "Banking System Outlook: Singapore" and can be found at www.moodys.com.