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Outlook negative for S’pore banking industry: Moody’s

SINGAPORE — Ratings agency Moody’s Investors Service has cut its outlook for Singapore’s banking system to negative from stable, as the lenders face worsening operating conditions both domestically and regionally.

SINGAPORE — Ratings agency Moody’s Investors Service has cut its outlook for Singapore’s banking system to negative from stable, as the lenders face worsening operating conditions both domestically and regionally.

“We have revised our outlook for Singapore’s banking system to negative from stable. The negative outlook over the next 12 to 18 months 
reflects two main factors: The weaker operating conditions for Singapore banks against the backdrop of softer domestic and regional economic and trade growth; and rising risks to the banks’ asset quality and profitability, from their high exposure to energy-related industries and the generally high leverage of domestic firms,” said Moody’s.

It warned that the Republic’s growth performance will be adversely affected by its slowing domestic manufacturing sector, and weaker economic activity in its key trade partners, including Greater China and Malaysia. The report comes as data from the Monetary Authority of Singapore Thursday (June 30) showed total bank lending in Singapore contracted for the eighth straight month in May, falling by 0.7 per cent year-on-year to S$592.8 billion, compared to the 
0.8 per cent fall in April as loans to businesses fell.

A day earlier, Moody’s had published a report forecasting Singapore’s gross domestic product to grow 1.6 per cent this year, at the lower end of the 1 to 3 per cent official forecast, saying that a slowdown in external demand will remain the key drag.

IG Markets analyst Bernard Aw said: “Overall, the outlook for banks in Singapore is less optimistic than six to 12 months ago. The continued economic challenges faced by Singapore are a reflection of the slowing growth in the global economy. The combination of weakness in foreign demand and in energy-related sectors, including offshore and marine, are increasing the default risk for related bank loans.

“In addition, the slowdown in loan growth and market volatility also 
affect the bank revenues. How long the banks will stay in this funk depends on how we address the headwinds to global growth in the coming months. In the short term, international capital flows, financial market reactions and exchange rate movements will affect business sentiment. In the long term, the governmental and political action will determine how well the world economy weathers the challenges,” he added.

Moody’s lowering of its outlook for Singapore’s banking system follows its move to cut the credit rating outlook of the three local banks in March to negative from stable. Moody’s rates DBS, OCBC and UOB at Aa1.

“The one (on Thursday) relates to Singapore’s banking system. The report is a reiteration of the previous opinion in March and shows a continuation of the same message on the conditions of Singapore banks,” said Mr Eugene Tarzimanov, Moody’s vice-president and senior credit officer.

The three local banks, when contacted by TODAY on Thursday (June 30), echoed the stand they made in March. 
Mr Jimmy Koh, managing director and head of investor relations at UOB, said: “UOB’s focus on risk management and maintaining robust capital and our strong balance sheet will continue to ensure our resilience in economic cycles and enable us to support customers for the long term.”

A DBS spokesperson said: “DBS retains our Aa1 rating, which is the second-highest level. We remain one of the highest-rated banks in the world, which has enabled the bank to be named Safest Bank in Asia for seven consecutive years.”

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