Rating agency Fitch Ratings has affirmed the ratings of Singapore banks at AA- with a stable outlook.
Fitch said in a statement yesterday that DBS Bank, its parent DBS Group Holdings, OCBC and United Overseas Bank had "strong funding profiles, which stem from their entrenched domestic franchises, healthy loss-absorption buffers, steady profitability and stringent regulatory oversight".
The affirmation means the banks' ratings have been reviewed and no changes have been made, and the agency expects a very low default risk. Fitch's rating indicates a "very strong capacity for payment of financial commitments". This comes after Moody's Investors Service revised its outlook on Singapore banks from "stable" to "negative" on March 31.
"These rating strengths should mitigate risks to the banks' balance sheets from higher credit costs amid a more challenging economic environment and rising exposures to emerging markets in the Asia-Pacific region," Fitch said.
It noted the Singapore banks had strong domestic deposit franchises, reflected in high Singapore dollar liquidity coverage ratios. This refers to the liquid assets like cash that banks hold to meet short-term obligations. Fitch said their US dollar deposits are growing significantly, rising at a compound annual rate of 26 per cent from end-March 2013 to March 31 this year.
The banks also face issues, as Fitch noted, pointing to slowing domestic and offshore lending growth, "due to sustained softness in the domestic property market, easing demand for cross-border trade finance and a weaker global economy".
Despite that, asset quality has held up well with offshore loan exposures remaining stable at an average of 51 per cent of the total at end-March, for instance.
Fitch's overview is the banks continue with plans to expand regional footprints in the medium term to capture earnings opportunities in faster-growing emerging markets. "This would expose them to the more challenging operating environments... but will help them diversify away from Singapore's mature, saturated and competitive environment."