On March 31, rating agency Moody's Investors Service revised its outlook on three large Singapore banks from 'stable' to 'negative'.
Readers have written in to ask about the significance of this move and whether it would affect the average Singaporean. They also asked if this would impact loans and interest rates.
Banking reporter Rachael Boon found the answers to the questions.
SIGNIFICANCE FOR THE AVERAGE SINGAPOREAN
Analysts say Moody's outlook revision for local banks will not have an impact on the average Singaporean. First, consider what the revision means for banks. The outlook revision shows the challenging macroeconomic conditions that banks are operating in, said KGI Fraser Securities analyst He Yuxuan.
This serves as a guide that indicates if macroeconomic conditions worsen, that would affect the banks' bottom-line profitability and asset quality.
Also note the downgrade of Singapore's macro profile to Very Strong (-) from Very Strong, which is related to a bank's credit rating.
A DBS spokesman explained: "Under Moody's rating methodology, the macro profiles of the countries a bank operates in are inputs into its credit rating. Moody's has downgraded Singapore's macro profile as a result of higher domestic corporate leverage."
In recent weeks, Moody's has also downgraded the operating environment of China, Hong Kong and Malaysia, as other places face similar challenges.
Moody's said the outlooks suggest how the banks' ratings are likely to move over the next 12 to 18 months. They refer only to the ratings of long-term deposits, issuer and senior unsecured debt of banks.
Agencies Fitch Ratings and Standard & Poor's (S&P) still maintain a stable outlook for the three local banks - DBS Bank, OCBC Bank and United Overseas Bank. As far as ratings are concerned, all three retain their Aa1 rating under Moody's.
Mr He noted that the credit rating issued by Moody's has been "one to two notches higher" than those of the other rating agencies, Fitch and S&P. "If the negative outlooks for the banks were to result in an eventual downgrade by Moody's, the revised credit ratings will still be on a par or one notch above the ratings given by S&P and Fitch."
Since the banks' creditworthiness remains strong, and they have set aside enough buffers, there is little cause for alarm, say analysts.
IMPACT ON INTEREST, LOAN RATES
"The interest rate environment is determined by the broader direction of the economy itself, rather than the upgrade or downgrade of the three local banks in credit ratings," said CIMB Private Banking economist Song Seng Wun.
He suggested looking at it the other way round: If the credit ratings are upgraded, would it mean a lower cost of borrowing for individuals, businesses or corporates?
The answer is No. "Interest rates will still very much be determined by factors outside of Singapore, to a large degree," he said.
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