Singapore banks credit profiles remain resilient but headwinds are rising: Fitch

SINGAPORE - The credit profiles of Singapore banks are likely to remain resilient despite macroeconomic headwinds in 2016, said rating agency Fitch Ratings on Tuesday.

It noted that their 2015 fullyear results were solid on the whole, but macro headwinds were already contributing to slower loan growth and higher credit costs.

Fitch Ratings said: "Cyclical risks in Singapore and other key regional markets are rising amid a slowing economy and continued volatility in commodity prices."

It expects further corrections in the domestic property market, as a large supply of new homes comes on to the market at a time when the economic outlook has become less sanguine, and these factors are likely to weigh on banks' asset quality and profitability.

Fitch expects credit costs for the three local banks DBS, UOB and OCBC - rated AA/Stable -to continue rising from still low levels.

It added that the overall loan exposure outside of Singapore remained relatively stable at around 52 per cent of total loans at the end of 2015.

Greater China, Malaysia, Indonesia and Thailand are the largest offshore exposures for the banks, and many are among the most exposed to slowing Chinese demand and the related commodity price rout.

Said Fitch: "We expect further deterioration in Singapore banks' asset quality if the China slowdown were to lengthen or deepen. Singapore banks' exposure to Greater China has increased to 25 per cent of total loans as at end of last year, from 17 per cent as at end of 2008."

It also expects the credit stress to broaden and deepen if low oil prices are prolonged, but said the impact on earnings will be manageable as exposure to the oil and gas sector is moderate as a proportion of banks' overall portfolios.

rachaelb@sph.com.sg