SINGAPORE - Credit rating agency Fitch Ratings has downgraded its sector outlook on the Singapore banking system to "negative", in light of soft economic conditions that are expected to persist next year.
This could place broadening pressure on banks' asset quality and dampen earnings over the next year, Fitch said.
" However, Singapore banks' solid credit profiles - characterised by steady funding and liquidity positions, strong loss-absorption buffers and healthy profitability - support our stable outlooks for their ratings."
Fitch has two types of outlooks - a "sector outlook" which reflects its views on the likely future performance of the sector, and a "rating outlook", which is an indicator of an entity's future credit risk.
Its downgrade of Singapore's banking sector outlook for 2017 comes as its overall sector outlook on Asia Pacific banks has become increasingly negative.
Three-quarters of the banking systems Fitch covers now have a negative outlook, including in Australia, Hong Kong, Japan, Malaysia and China, compared with fewer than half a year ago.
These banking systems face a slew of economic risks that could affect their loanbooks and profits, Fitch said. These include economic headwinds from China, low commodity prices and related currency pressures.
For Singapore banks, Fitch said the key stress point lies in the oil and gas sector, which it expects willcontinue to exert moderate pressure on banks' asset quality in 2017.
"Prolonged economic weakness could lead to broader asset-quality risks which may also affect small- and medium-sized businesses," Fitch added.
However, Fitch said it believes the downside risks to be manageable, as the banks' combined exposure of US$16.1 billion (S$2.27 billion) to the troubled offshore support services represented just 17 per cent of their core equity Tier 1 capital at end-September.
