SINGAPORE – Local bank stocks slumped on Thursday amid fears of wider financial contagion globally from the crisis engulfing Switzerland’s second-biggest bank and a string of bank failures in the US.
The Monetary Authority of Singapore (MAS) said on Thursday night that it has been in close contact with its counterpart in Switzerland, the Swiss Financial Market Supervisory Authority (Finma), over recent developments surrounding the Credit Suisse Group.
MAS noted that the Swiss bank’s Singapore branch has its main activities in private and investment banking, and does not serve retail customers.
It added that Singapore’s banking system remains sound and resilient, and lenders here are well-capitalised and conduct regular stress tests against credit and other risks. “Their liquidity positions are healthy, underpinned by a stable and diversified funding base,” said MAS, adding that it will continue to closely monitor developments, and remains in contact with Finma.
The fall in local bank stocks comes after Credit Suisse sank as much as 30 per cent on Wednesday after its largest shareholder, Saudi National Bank, ruled out investing any more in the bank on regulatory grounds.
The cost of insuring the bank’s bonds against default for one year surged to levels not seen for big international banks since the 2008 financial crisis.
Credit Suisse shares bounced back on Thursday, soaring as much as 40 per cent in early Zurich trading, after the bank secured a 50 billion Swiss franc (S$73 billion) lifeline from the Swiss National Bank (SNB).
Asian stock markets pared losses but closed in the red, with the benchmark Straits Times Index down 0.55 per cent, or 17.38 points.
DBS shares dropped 1.27 per cent to $32.55, while OCBC slid 0.98 per cent to $12.15, and UOB dipped 0.71 per cent to $28.
In response to queries from The Straits Times, the three banks said their exposure to Credit Suisse is insignificant.
Credit Suisse is one of 30 global financial institutions that are deemed to be systemically important by the international Financial Stability Board. This means their failure could trigger a wider financial crisis and threaten the global economy.
Finma and the SNB said on Wednesday that Credit Suisse continues to meet the higher capital and liquidity requirements applicable to Swiss systemically important banks.
Credit Suisse declined to comment on the size of its Singapore operations.
Mr Aaron Chwee, OCBC Bank’s head of wealth advisory, said the liquidity backstop provided by the SNB will offer short-term relief for markets, but investors will look for longer-term solutions to Credit Suisse’s problems. “This uncertainty will likely result in elevated volatility within the US and European financial sectors over the next few days, and maybe weeks,” he said.
Financial markets globally have also been roiled by the collapse of United States mid-sized lender Silicon Valley Bank (SVB) and the closure of Signature Bank in New York state over the past week.
US regulators had to step in and provide guarantees that all depositors from SVB and Signature Bank would be repaid in full. Up to US$25 billion (S$33.8 billion) was also made available to fund a new lending programme allowing one-year loans to banks under easier terms.
Crypto-focused lender Silvergate Bank announced earlier last week that it planned to wind down and voluntarily liquidate its operations.
Mr Kelvin Tay, chief investment officer for Asia-Pacific at UBS, said markets are clearly struggling with three inter-related but different issues – bank solvency, liquidity and profitability.
“Bank solvency fears are clearly overdone as most banks, including European banks, have strong liquidity positions and depositors remain well protected.
“But a number of individual banks may require central bank liquidity support if funding conditions remain challenging for an extended period of time, hence the panic over Credit Suisse last night when its biggest stakeholder ruled out further support,” he said on Thursday morning.
Phillip Securities Research analyst Glenn Thum said Singapore banks and Credit Suisse have quite different customer bases – Credit Suisse’s customers are primarily wealthy clients and businesses, while Singapore banks’ customers are mainly everyday savers and small and medium-sized companies.
As such, “the overall risk and exposure to Singapore banks is limited”, he said.
“With that being said, the recent collapses and news would impact the overall market, and there might be a further slowdown in loans growth, which might affect the growth of Singapore banks.”
Mr Thilan Wickramasinghe, head of regional financials at Maybank, said Singapore banks have conservative balance sheets and high capital levels.
“Apart from the regulatory oversight, they are historically more cautious following the Asian financial crisis and global financial crisis. Deposit bases are diversified and assets are largely loans. Most bond holdings are towards the short end,” he added.
Short-term bonds are less sensitive to interest rate changes than long-term bonds, so their value is less likely to decline significantly compared with longer-term ones if interest rates rise.
Bloomberg Intelligence Asian financials credit analyst Rena Kwok said Singapore banks’ additional tier 1 dollar bonds are trading close to par since SVB’s fallout, adding: “This is thanks to their superior capital and liquidity positions, as well as robust asset quality among Asian banks.”
Analysts said the current situation is unlikely to be an echo of Lehman Brothers, whose failure in 2008 triggered the global financial crisis.
Mr Tay said banking stocks sold off on Wednesday night amid growing concerns of counter-party risk, which, together with the collapse of SVB and troubles at First Republic Bank, is evoking memories of the 2008 crisis.
“But this is not a highly correlated liquidity situation, or contagion. Rather, this is a typical risk-off event and reflects the typical behaviour seen in recessions or at the beginning of recessions,” he said.
Manulife Investment Management portfolio manager Ryan Lentell and senior portfolio manager Susan Curry said many of the issues faced by the now-shuttered banking entities are likely specific to these institutions due to their high concentration in industries that were facing significant funding, regulatory or legal pressures.
“Some banking stocks that are coming under pressure today don’t face that same issue, having customer bases that are diversified across many industries, which reduces their liquidity risk. Additionally, we believe that most banks have assets that have benefited from higher interest rates,” they added.
Ms Monica Defend, head of Amundi Institute, said big systemic banks have been well-capitalised and highly regulated since the financial crisis.
“Overall, we think systemic banks are in a much better condition than in 2008, and we are not worried by them, per se, in terms of solvency and their capacity to absorb shocks,” she noted.
However, there are some risks for smaller banks, which have less stringent capital rules that may fail to prevent such situations, she added.
On that note, another US regional lender, San Francisco-based First Republic Bank, is reportedly exploring strategic options, including a sale, after its credit rating was downgraded on Wednesday by Fitch Ratings and S&P Global Ratings.