RETAIL BANKING | Roxanne Uy, Singapore

Will Singapore banks suffer from lower earnings in 2012?

According to reports, Singapore banks may have to bear the brunt of flat interest margins and low loan growth, but will they really be hit that hard?

Fitch Ratings: Alfred Chan, Director, Financial Institutions
While revenues are broad-based, profitability at Singapore banks should ease in 2012 due to tight margins, volatile trading conditions and rising credit costs. While the direct impact from the ongoing sovereign crisis in Europe is unlikely to be significant, downside economic risks remain for Singapore – as well as for Hong Kong, Malaysia, Indonesia and Thailand where Singapore banks have significant operations.

Standard & Poor’s: Ivan Tan, Primary Credit Analyst
Weaker demand for loans means that Singapore’s banks can no longer rely on volume to maintain profitability in 2012. Loan growth will moderate this year, compared with that in 2011, as economic growth decelerates, in our view. Interest margins are also likely to continue to come under pressure as banks compete to deploy their excess liquidity, especially in Singapore dollar, in higher yielding assets. Margins fell to 1.8% in the third quarter of 2011, from 2% in the same period in 2010. We expect margin compression to moderate in 2012, although margins will likely remain constrained. Interest rates globally are also likely to remain low for some time. Nevertheless, Standard & Poor’s outlook for Singapore banks is stable, based on the system’s sound fundamentals.

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