Moody's changes S'pore banking system outlook to negative

[reporter2]

http://www.businesstimes.com.sg/brea...ative-20130715

Published July 15, 2013

Moody's changes S'pore banking system outlook to negative


Moody's Investors Service has changed the outlook for Singapore's banking system to negative from stable, owing to the recent period of rapid loan growth and rising real estate prices in Singapore and in regional markets where Singapore banks are active.

These have increased the probability of deterioration in credit quality under potential adverse conditions for the banks in the future.

"The operating environment for Singapore's banking system has been favorable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region.

"With the potential risk of a turn in the interest rate cycle, we view strong asset inflation and credit growth trends as vulnerabilities, as this combination would likely cause credit costs to rise from their current low base," says Gene Fang, Moody's vice-president and senior analyst.

Ms Fang was speaking on a just-released Moody's report titled, "Singapore Banking System Outlook." The report details Moody's expectation of how bank creditworthiness will evolve in this system over the next 12-18 months.

While Singapore banks have improved their non-performing loans (NPLs) over the past few years, asset quality has potentially peaked both at home and in many of the regional markets in which these banks operate.

A turning point in the credit cycle is likely to lead to a worsening of NPL ratios and higher credit costs.

Although it is difficult to exactly predict turning points in banking credit cycles, Moody's believes the increased likelihood of a tightening of monetary policy by the US - with a higher probability of a tapering of quantitative-easing during the outlook period - is a potential trigger.

Moody's report highlights that Singapore banks continue to have strong financial metrics, underpinning their high average ratings compared to all banking systems globally, both on standalone and supported bases.

"Our outlook is a directional, forward-looking view of the trend in the banks' relative credit quality, which we consider as having potentially reached - or to be close to reaching - a cyclical peak," Ms Fang says.

Moody's rates three major Singapore banks: DBS Bank Ltd (Aa1/B/aa3 negative(m)), OCBC Ltd (Aa1/B/aa3 stable(m)) and UOB Ltd. (Aa1/B/aa3 stable(m)). Moody's also rates OCBC's fully owned subsidiary, Bank of Singapore (Aa1/C-/baa1 stable).

Moody's incorporates government support in the ratings of all three Singapore banks, since a failure in any single institution is likely to have knock-on effects for the banking system and broader economy. - Moody's

[EBD]

Maybe Moody's been reading this forum and find many people think 1700 psf in Jurong is good deal.

Signal top of the market, risk high high!

[Arcachon]

After all the CDOs crab, still believe what the Anal-List say????

[狮子王]

Woahaahahahhehheheheheh

My business associates and me fell off our chairs laughing and I sprayed all the coffee from my mouth la...CHIOKAPENG !

[狮子王]

Woahaahahahhehheheheheh

My business associates and me fell off our chairs laughing and I sprayed all the coffee from my mouth la...CHIOKAPENG !

Use you brains la...do you even need to rate it negative? Why the lame rush to rate negative ? You can always stay on neutral outlook what... WOAHAHEHEHEHEHEHEHEHEHHE

[狮子王]

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买中产只能换人民币。
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阿叔今日来说明：
别上美元的当！

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不过才智比人高。
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让你也和阿叔一样精。
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[phantom_opera]

Other banks are too big to fail .. Singapore banks are too small u know

[reporter2]

http://www.businesstimes.com.sg/prem...ector-20130716

Published July 16, 2013

Moody's turns bearish on S'pore bank sector

It downgrades outlook to negative on concerns over rapid loan growth and possibility of fall in asset values

By Siow Li Sen


[SINGAPORE] Moody's Investors Service has downgraded the outlook for Singapore's banking system to negative from stable, owing to rapid loan growth and rising real estate prices at home and in the region.

The profitability of the three local banks has also fallen due to intense competition, said the ratings agency in a report yesterday.

There are worries that the US monetary policy may tighten. This could lead to outflows from the region and potentially trigger a crash in asset values.

"Such outflows could simultaneously place downward pressure on asset prices and collateral in several of the emerging markets where Singapore banks operate," it said.

Fears over tightening US monetary policy caused the Straits Times Index to drop 11 per cent between 22 May and 24 June. At the same time, yields on Singapore government bonds maturing in 2022 rose 120 basis points.

"Rising rates are likely to impact borrowers' ability to pay outstanding obligations," Moody's said.

The report noted the strong financials of the three local banks, underpinning their high average ratings compared to all banking systems globally, both on standalone and supported bases.

All three - DBS Bank, OCBC Bank and United Overseas Bank - have similar bank financial strength rating of B/aa3 and long term bank deposit rating of Aa1.

OCBC and UOB have stable outlooks. DBS has a negative outlook since August 2012 following a review after the bank proposed buying Bank Danamon Indonesia in a deal worth $9.1 billion.

Moody's also highlighted the strong support from the government which has a strong fiscal position.

Chng Sok Hui, DBS Bank chief financial officer said: "Singapore's well capitalized 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 measures to rein in excessive leverage by the private sector, said Ms Chng.

"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," she said.

Said Collins Chin, OCBC Bank head of investor relations: "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."

Domestically, household debt increased to 77.2 per cent of gross domestic product (GDP) as of March 2013 from 64.4 per cent at end-2007. For the same time period, prices for private property grew 1.2 times and prices for HDB flats 1.7 times. "Regionally, we observe similar or even more dramatic trends," the report said.

Household debt in Malaysia has increased to 80.5 per cent of GDP as of year-end 2012. In Hong Kong, residential property prices increased 122 per cent between 2009 and 2012, while the system faces increasing exposure to Mainland China.

Since 2009, credit growth in Singapore has exceeded historical medians, in terms of both Singapore dollars (SGD) and non-domestic currencies.

In terms of SGD, credit has grown at a 20.4 per cent compound annual growth rate (CAGR) since 2009, compared to 8.1 per cent for the previous 15 years. As a percentage of GDP, credit now exceeds its historic median.

"The ratio of credit growth to GDP growth is particularly high, considering the maturity of Singapore's economy. While this situation partly stems from Singapore's role as an off-shore banking centre, recent credit growth has outpaced similar regional banking centres, such as Hong Kong, when considered relative to GDP growth," said the report.

Moody's expects loan growth, which was a hefty 12.4 per cent in Q1 2013, to remain strong, with increased competition in the consumer and small and medium enterprise segments.

The SGD loan-to-deposit ratio has risen steadily and is now at its highest in six years.

"We expect that loan growth will continue to outpace deposit growth, meaning that competition for deposits will stay strong. Such competition will mean downward pressure on net interest margins, though this scenario may be somewhat offset when rates begin to rise."

On the banks' more risky regional exposure, Moody's noted that this grew at a faster 15 per cent CAGR between 2009 and 2012, compared to 11 per cent for Singapore assets.

Assets outside Singapore represented 37 per cent of total bank assets.

"We expect the operating environment in several of these markets (such as Malaysia, Indonesia, and China) to become more challenging due to changing growth and interest rate conditions," it said.

Last year, 77 per cent of the three local banks' non-performing loans (NPLs) were related to loans made by borrowers outside Singapore, compared to 65 per cent in 2008. While the banks have improved their NPLs over the past few years, asset quality has potentially peaked both at home and in many of the regional markets, it said.

The average NPL last year was 1.20 per cent.

A turning point in the credit cycle is likely to lead to a worsening of NPL ratios and higher credit costs, it said.