Singapore's three banks are likely to continue to see the narrowed net interest margins, deteriorating asset quality and slowing loan growth they experienced in the third quarter, Fitch Ratings noted yesterday.
It also said that while the earnings of DBS Bank, OCBC Bank and United Overseas Bank (UOB) may have peaked in this cycle, their capital and liquidity profiles remain sound and should provide adequate buffers.
The banks' third-quarter results indicated rising asset-quality risk.
OCBC, for example, downgraded two Singapore corporate accounts in the offshore support services and transport sectors.
UOB was also affected by some small building construction accounts and one small oil and gas account, which were all Singapore accounts.
All three lenders are likely to see higher credit costs - the amount set aside for bad loans - next year, said Fitch, adding: "We see greater vulnerability in Hong Kong SME (small and medium-sized enterprises) loans, with DBS and OCBC having higher exposure than UOB."
We see greater vulnerability in Hong Kong SME (small and medium-sized enterprises) loans, with DBS and OCBC having higher exposure than UOB.
FITCH RATINGS, on the three local banks.
In terms of their overall exposure to Hong Kong, the banks' impaired-loan ratios in the city rocked by protests are still at less than 1 per cent, although this could worsen if the unrest drags on.
Hong Kong loans constituted about 12 per cent to 16 per cent of gross loans at the Singapore banks as at Sept 30. DBS and OCBC had set aside some pre-emptive provisioning in the third quarter, but risks could be mitigated by their well-collaterised exposure, Fitch said.
Further compression of net interest margins is likely for the three banks due to the lagged effect of lower rates and continued competitive pricing.