Moody’s Investors Service on Thursday (March 31) cut its rating outlook on the three Singapore banks to negative from stable, saying that a more challenging operating environment will pressure the lenders’ asset quality and profitability, prompting a sell-off in banking stocks that helped drag The Straits Times Index lower.

DBS Group Holdings, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) are expected to report higher levels of problem loans and will need to increase their loan-loss provisions, leading to lower profitability, Moody’s said.

The rating agency also expects credit conditions for banks here to continue to weaken against the backdrop of slower economic and trade growth, both domestically and in the region, it said. It warned that a looming risk for Singapore banks’ asset quality is their large exposure to borrowers in the oil and gas sector, including services firms, which were most affected by the collapse in oil prices.

Shares of the three banks occupied the second to fourth spots on the Singapore Exchange’s most actively traded list on Thursday, surpassed in value traded only by the largest listed company Singtel. DBS shares fell 0.7 per cent to S$15.38, OCBC shares shed 1.2 per cent to S$8.84 while UOB shares lost 0.9 per cent to S$18.87 per share, helping to drive the STI 1.11 per cent lower to close at 2,840.90.

Despite the selloff, Mr Song Seng Wun, CIMB Private Banking economist in Singapore, downplayed the impact of the Moody’s move.

“Moody’s is not wrong in terms of their assessment of the banks, but the local banks are so well capitalized and buffered on all fronts that this revision in rating outlook will not make any difference in real terms. Keeping in mind the previous financial crisis, the rating agencies are being be more proactive in their credit assessment,” he said.

Rating outlooks provide an opinion on the likely rating direction over the next 12 to 18 months. Although it lowered the outlook to negative in a signal that a possible downgrade in the banks’ credit rating could take place, Moody’s said the Singapore lenders maintain very strong buffers in terms of capital, loan-loss provisions and pre-provision income.

Their funding and liquidity profiles are also robust, it said. Therefore, Moody’s has affirmed the banks’ credit ratings, baseline credit assessments and counterparty risk assessments. OCBC and UOB are both assigned Aa1 ratings at Moody’s, one notch below the top rating. DBS Bank is also rated Aa1 but its parent DBS Group Holdings is rated Aa2, two notches below the best rating.

The three local lenders said they stand among the top rated banks in the world, noting that the cut in the outlook followed Moody’s downgrading Singapore’s macro-profile to “Very Strong-” from “Very Strong”. Although domestic credit growth moderated last year, Moody’s said that the overall leverage in the Singapore economy remains elevated compared to that of the previous decade.

Moody’s had also recently downgraded the operating environments of China, Hong Kong and Malaysia.

A DBS spokesperson said: “We remain one of the highest-rated banks in the world… With global growth likely to be slower this year, we will grow our business sensibly, while being watchful of risks. DBS’ asset quality is resilient and our liquidity and capital positions are strong.”

Mr Darren Tan, Chief Financial Officer of OCBC, said: “We have been prudently managing our franchise. In particular, we have been paying close attention to the management of our asset portfolio and ensuring that our liquidity and capital positions remain robust.”

Mr Jimmy Koh, Managing Director and Head of Investor Relations at UOB, said: “UOB’s priorities of maintaining robust capital and risk management as well as preserving a strong balance sheet and funding base, help ensure our resilience through economic cycles and enable us to support customers in the long term.”

Source:
courtesy of TODAY

by Rumi Hardasmalani

If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]