Moody's raises Singapore's banking system outlook from negative to stable

The NCS programme - called Solutions for Urbanised Future, or Surf - aims to train young professionals in key areas of smart city development, such as coding, data science and data analytics.
The NCS programme - called Solutions for Urbanised Future, or Surf - aims to train young professionals in key areas of smart city development, such as coding, data science and data analytics.PHOTO: ST FILE

SINGAPORE - Moody's Investors Service said on Thursday that it has upgraded its outlook for Singapore's (Aaa stable) banking system to stable, reflecting the domestic property market's soft landing, and moderating domestic and cross-border credit growth. The outlook was previously negative since July 2013.

Moody's rates all three of Singapore's major banks - DBS Bank, Oversea-Chinese Banking Corporation and United Overseas Bank - as Aa1 stable, aa3.

It also rates Bank of Singapore, the private-banking subsidiary of OCBC, as Aa1 stable, a3.

The credit rating agency said it expects Singapore banks to continue benefitting from healthy - although lower - economic growth both domestically and in their regional operations. While real GDP growth in Singapore will slow to around 3 per cent in 2015 and 2016 as a result of slower growth in China, this will be offset somewhat by the recovering US economy, it said.

"We expect moderate credit growth for Singapore banks in the next 12-18 months, which will help to regulate household and corporate leverage," said Eugene Tarzimanov, Moody's vice president - senior credit officer. "But problem loans will increase somewhat during 2015-16, mainly from foreign loans, while the quality of domestic loans will remain stable."

Moody's said Singapore's domestic property market is undergoing a soft-landing, with regulatory steps and new housing supply having moderated prices for public and private housing by about 5 to 7 per cent since 2013.

Moody's said itexpects this trend to continue as additional housing supply comes online, interest rates gradually increase and current regulatory measures remain in place.

The rating agency expects Singapore banks to maintain stable loan-to-deposit ratios of around 90 per cent in 2015-16, but profitability will decline as higher credit costs and slower loan growth weigh on margins.

While higher interest rates will provide support to net interest margins, Moody's expects improvements to be very gradual and offset by these higher credit costs.

Capital buffers will stay strong, unaffected by credit costs as recurring earnings will cover gradually increasing loan-loss provisions, and risk-weighted asset growth will be in line with internal capital generation, said Moody's.

Systemic support for Singapore's large banks is very high, given their importance to the banking system and overall economy, it added. In addition, the Singapore government's recently proposed bank resolution regime is among the most investor-friendly in the world, Moody's noted.