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SINGAPORE: Credit ratings agency Moody's said Singapore's banking system outlook is stable.
But the long term ratings of its three rated Singapore banks - DBS, OCBC and UOB are negative.
The rating agency expects the loan demand to grow in tandem with economic recovery.
The Singapore economy is now forecast to expand by between 5.5 and 6.5 per cent.
And that bodes well for the Singapore banks which have been more resilient compared to their Western counterparts .
Moody's also expects them to put in better earnings, on the back of stronger net interest income and lower credit cost.
Christine Kuo, vice president, Financial Institutions Group, Moody's Singapore, said: "The Singapore banks are very liquid. They have a huge amount of Singdollar deposits and their loan to deposit ratio is below 80 per cent which is very liquid.
“We are pretty sure that they will use their excess liquidity to support their loan growth and with rising loans to deposit ratio that will benefit their net interest margins too.”
In addition, Moody's said fee and commission income from loans and trade financing will likely rise while fee income from stock brokerage and fund management will remain volatile.
But having said that, the outlook for the long term ratings of the three banks are negative due to their significant exposures outside of Singapore.
Another downside risk is the threat of an asset bubble in the property market, even though the Singapore government has taken steps to reduce speculation.
Ms Kuo added: "We looked at the portfolio of Singaporean banks. About 50 per cent of their exposure are either in housing loans or in real estate related loans. 50 per cent is a big number. So if the real estate market suffers, we think that will affect the loan demand as well as asset quality."
Given the banks' high ratings, Moody's said it needs to ensure the banks' overseas operations also stabilise before the rating outlook can be revised back to stable. - CNA/vm
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