Moody's puts Singapore banks on "negative" outlook

Credit rating agency Moody’s on Monday downgraded the outlook of Singapore’s three main banks to “negative” from “stable” amid rising property prices and mounting household debt in the city-state, reported AFP.

“The two main drivers underpinning our opinion are the recent period of rapid loan growth and rising real estate prices in Singapore and in regional markets where Singapore banks are active,” it said in a statement.

“These have increased the probability of deterioration in the banks’ credit profiles under potential adverse conditions in the future.”

Moody’s said Singapore banks have been operating in a favourable environment for an extended period amid low interest rates and strong regional economic growth, which has led to rising credit and asset inflation in the property and financial markets.

Domestically, household debt increased to 77.2% of gross domestic product as of March 2013 from 64.4% at the end of 2007, with private property prices growing 120% during the same period.

“Regionally, we observe similar or even more dramatic trends,” Moody’s added, noting that Singapore banks generate more than 37% of their revenues from overseas markets.

A tightening of US monetary policy is a “potential trigger” that could have an impact on interest rates in Singapore and neighbouring countries as well as capital flows in emerging economies where Singapore banks are active, Moody’s said.

Federal Reserve Chairman Ben Bernanke said last week the US central bank would maintain its growth-oriented policies “for the foreseeable future”. But some analysts expect its US$85 billion-a-month bond purchases to taper off in coming months, possibly in September.

Moody’s outlook report covers prospects in the next 12-18 months for DBS Bank, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB).

UOB declined to comment on the outlook downgrade, but highlighted its existing strong capital base and stable financial ratios.

In a statement, OCBC’s head of investor relations Collins Chin said: “While we recognise the potential risks in the operating environment that have led to the revision in Singapore’s banking system outlook, we note too that Singapore’s banks continue to be prudently run, with sound financial metrics, and supported by strong credit ratings.”

DBS Bank CFO Chng Sok Hui said in a statement that “Singapore’s well capitalised banking system remains resilient, notwithstanding that credit costs would likely rise from the current low levels.

“The MAS has put in place a number of macro-prudential measures to rein in instances of excessive leverage by the private sector. The ability of Singapore households and Singapore corporates to withstand financial shocks are healthy relative to their counterparts in other countries.

“For DBS in particular, a rise in short term interest rates will lift our net interest income which will help mitigate the higher credit costs from a rise in interest rates.”