Standard & Poor's yesterday upgraded its view of the economic risk trend for the banking sector here from stable to positive.
A positive trend view indicates that the rating agency believes there is at least a 30 per cent chance for the economic risks faced by local banks to improve in the next year or two.
The change was made to account for the Government's efforts to cool the property bubble and tighten credit quality control.
S&P said: "In our view, Singapore has economic imbalances stemming from elevated property prices and a rapid rise in private sector credit in recent years.
It added: "The Government has taken a multi-pronged approach to address the imbalances, including a series of property cooling measures and the introduction of a framework to limit the debt servicing for an individual."
S&P was referring to measures such as the Additional Buyer's Stamp Duty and the Total Debt Servicing Ratio framework.
These "macro-prudential" initiatives, as defined by the Monetary Authority of Singapore, have led to a persistent drop in property prices. The Urban Redevelopment Authority said last week prices pared 0.9 per cent in the quarter to June 30 in the seventh straight quarter of decline.
The prices are now down 6.7 per cent from their peak in 2013. S&P noted that the potential risks faced by banks here may further reduce "if modest and orderly decline in property prices continues over the next two years".
"This hinges on the Government's policy stance and continued enforcement of cooling measures,'' it said.
The MAS already stressed that stance in its annual report briefing last week, when managing director Ravi Menon said it was premature to unwind the property cooling measures despite the price drop.
Meanwhile, S&P said the upgraded economic risk trend view yesterday will not change the actual ratings or outlooks of local banks.
The S&P announcement followed a similar move by Moody's on July 16, when it upgraded its outlook for Singapore's banking system from negative to stable to reflect the property market's soft landing and moderating credit growth.
