Moody's lowers credit rating outlook of Singapore banks to negative from stable

People use automated teller machines of United Overseas Bank Limited (UOB), Development Bank of Singapore (DBS) and Oversea-Chinese Banking Corporation (OCBC) banks.
People use automated teller machines of United Overseas Bank Limited (UOB), Development Bank of Singapore (DBS) and Oversea-Chinese Banking Corporation (OCBC) banks. PHOTO: REUTERS

SINGAPORE - Moody's Investors Service has lowered the credit rating outlook of Singapore's Big Three banks to negative from stable, citing concerns over the banks' asset quality and profitability.

The banks affected are DBS Bank, its parent DBS Group Holdings, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), Moody's said in a statement on Thursday (March 31).

Moody's said its revision reflects its expectation that a more challenging operating environment for banks in Singapore in 2016, and possibly beyond, will pressure the banks' asset quality and profitability.

"Moody's expects credit conditions for banks in Singapore will continue to weaken against the backdrop of slower economic and trade growth, both domestically and in the region," the rating agency said.

It said it expects that Singapore banks will report higher problem loan levels and will need to increase loan loss provisions, leading to lower bottom-line profitability.

But Moody's also noted that the Singapore banks have very strong buffers in terms of capital, loan loss provisions and pre-provision income. The banks' funding and liquidity profiles are also robust and there was also a "very high" probability of government support, if needed.

Moody's said as such it has affirmed the four banking groups' credit ratings. Rating outlooks provide an opinion on the likely rating direction over the next 12-18 months, and are assigned only to banks' long-term deposit, issuer and senior unsecured debt ratings.

Moody's currently rates DBS Bank, OCBC, and UOB at Aa1, the second-highest long-term rating possible. DBS Group Holdings is rated at Aa2, a notch below the other banks.