SINGAPORE: The asset quality of the three domestic banks in the Republic - DBS Bank, Oversea-Chinese Banking Corporation and United Overseas Bank - will be negatively pressured, said Moody's Investors Service on Tuesday (Dec 1).
This will lead to higher credit costs that will limit the banks' internal capital generation, it added.
The comments came after the Monetary Authority of Singapore (MAS) published its Financial Stability Report on Nov 27. Moody's said the MAS data showed that the share of debt owed by Singapore companies that are highly leveraged has risen significantly both in relation to earnings and equity.
It added that the data also showed an increase in nonperforming loan (NPL) ratios. OCBC and UOB had recently attributed increases in their NPLs to corporate borrowers in the oil and gas sector, while DBS raised concerns around SME asset quality in Singapore and Hong Kong.
Moody's also said that the three Singapore-based banks also face rising corporate leverage and weaker debt repayment capacities in key overseas markets such as Greater China and South and Southeast Asia. This is due to sizeable regional operations outside Singapore that make up 40 to 60 per cent of their loan portfolios.
The credit rating agency said that these headwinds will erode the banks’ capital levels "as profitability weakens and negative credit migrations result in higher risk weights on their credit exposures".
However, the banks will still have strong capital buffers, it added.
"As of September 2015, all three banks had common equity Tier 1 ratios well above regulatory minimum of 9 per cent, which includes 2.5 per cent capital conservation buffer and 2 per cent buffer for domestic systemically important banks," said Moody's.
This will lead to higher credit costs that will limit the banks' internal capital generation, it added.
The comments came after the Monetary Authority of Singapore (MAS) published its Financial Stability Report on Nov 27. Moody's said the MAS data showed that the share of debt owed by Singapore companies that are highly leveraged has risen significantly both in relation to earnings and equity.
It added that the data also showed an increase in nonperforming loan (NPL) ratios. OCBC and UOB had recently attributed increases in their NPLs to corporate borrowers in the oil and gas sector, while DBS raised concerns around SME asset quality in Singapore and Hong Kong.
Moody's also said that the three Singapore-based banks also face rising corporate leverage and weaker debt repayment capacities in key overseas markets such as Greater China and South and Southeast Asia. This is due to sizeable regional operations outside Singapore that make up 40 to 60 per cent of their loan portfolios.
The credit rating agency said that these headwinds will erode the banks’ capital levels "as profitability weakens and negative credit migrations result in higher risk weights on their credit exposures".
However, the banks will still have strong capital buffers, it added.
"As of September 2015, all three banks had common equity Tier 1 ratios well above regulatory minimum of 9 per cent, which includes 2.5 per cent capital conservation buffer and 2 per cent buffer for domestic systemically important banks," said Moody's.
