The three local banks in Singapore are financially strong and are not at risk, said the Monetary Authority of Singapore (MAS) on Tuesday.

It noted that Singapore's banks - DBS, United Overseas Bank and OCBC - have the highest average credit ratings among banking systems globally.

In response to a report released on Monday by ratings agency Moody's Investors Service, which had lowered the outlook for Singapore's banking system from stable to negative, the MAS said that Moody's decision must be "viewed against a few basic facts".

First, Singapore's three banks all carry a long-term bank deposit rating of Aa1 from Moody's - the highest average score for any country in the world.

Second, Moody's has also cut its ratings outlook over the past two years for other well-rated banking systems, the MAS noted.

"This is understandable, in light of the impact that low global interest rates have had on credit growth and asset prices, and the potential risks when interest rates rise," the MAS said.

"The local banks are not immune to such concerns."

However, the banks here have "strong financial positions by any serious assessment", the MAS added.

"As Moody's itself concluded, the local banks have enough capital to withstand even the severe stress test scenarios that it considered."

The financial regulator also said it has been concerned that some borrowers are at risk of being overstretched, especially when interest rates rise, but the banks themselves are "not at risk".

"They undertake regular stress tests on their own as well as coordinated by the MAS, and have adequate buffers in place to cope with the inevitable upturn in the interest rate cycle," the MAS said.