Moody's downgrades Singapore banking system to 'negative'

The outlook for Singapore's banking system has plunged from stable to negative due to the recent period of soaring loan growth, as well as rising property prices locally and in countries where Singapore banks operate. According to Moody's Investors Service, these factors increase the chance that credit quality would deteriorate under potential adverse conditions in future. "The operating environment for Singapore's banking system has been favourable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region," said Moody's Vice President and Senior Analyst Gene Fang. "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." Fang was commenting on the recently released Moody's report called Singapore Banking System Outlook, which details Moody's forecasts on how bank creditworthiness will evolve in this system for the next 12 to 18 months. Singapore banks have enhanced their non-performing loans (NPLs) in the past few years. However, asset quality may have peaked both in the city-state and in many regional markets in which these banks are active. A reversal in the credit cycle could likely lead to higher credit costs and a worsening of NPL ratios. While it is difficult to accurately predict turning points in banking credit cycles, Moody's believes the slowing of the US Federal Reserve's bond-buying programme could be a potential trigger. Nevertheless, Singapore banks continue to have robust financial metrics, which supports their high average ratings compared to other banking systems globally, both on standalone and supported bases.

Romesh Navaratnarajah, Senior Editor at PropertyGuru, wrote this story. To contact him about this or other stories email romesh@allproperty.com.sg

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