Moody’s Investors Service forecast steady sailing for Singapore’s banks, with improved profitability and stronger economic growth.
In a report Monday, Moody’s Investors Service said the outlook for the city-state’s banks was stable, citing projections Singapore’s real gross domestic product (GDP) would grow 3.8 percent this year, faster than pre-pandemic levels.
“Singaporean banks’ profitability will improve as net interest income increases, helped by a widening of net interest margins (NIMs) and modest levels of credit provisions. Asset quality will be stable, with loan-loss reserves fully covering problem loans,” Moody’s said. “Banks will maintain strong funding and liquidity, and finance credit growth primarily with deposits without significantly increasing market borrowings.”
Wealth management growth
Income from fees and commissions is expected to increase amid further growth in wealth management services, Moody’s said. NIMs are likely to rise as U.S. interest rates increase due to multiple hikes from the U.S. Federal Reserve, Moody’s said, noting Singapore’s rates are correlated with the U.S.
The risks related to Singapore’s property market remain well-contained as higher interest rates are slowing the growth in real estate prices, Moody’s said.
In December, the Singapore government imposed a fresh round of cooling measures on the property market, including increasing the Additional Buyer’s Stamp Duty (ABSD) rates and changes to loan-to-value limits.
Moody’s rated DBS, OCBC and UOB at Aa1, and subsidiaries of foreign banks Standard Chartered Bank (Singapore) and Maybank Singapore at A1; Bank of Singapore, a subsidiary of OCBC, was rated at Aa1. Those banks accounted for more than 60 percent of Singapore-dollar loans and more than 80 percent of Singapore-dollar deposits in the system at end-2021, the note said.
Asia-Pacific banks’ outlook
Moody’s added in a separate note that it has a stable outlook on the majority of the 15 Asia-Pacific banking systems it tracked. The ratings service raised the outlook to stable from negative on Japan and Bangladesh.
“The stable outlook is supported by recovering macroeconomic and operating conditions in APAC economies, banks’ largely stable asset quality, capital and liquidity, and rising profitability. The outlook on one system – Vietnam – remains positive,” Moody’s said. It added that it expected the region’s banks to see rising profitability amid rising interest rates.
“The outlook on many APAC banking systems could have been positive if not for the military conflict in Eastern Europe, which is the key risk for the outlook. A potential further escalation of the military conflict and/or additional sanctions or embargoes on Russia’s exports would fuel commodity prices and inflation, a credit-negative for real economic growth, financial markets, business and consumer confidence,” the ratings agency said.