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Singapore Banks Showing Significant Improvement: S&P Global Ratings

Pandemic containment and vaccination coverage in Singapore are reducing downside credit risks in those markets. 

SINGAPORE — Singaporean banks are leading their south and southeast Asian peers in the recovery from Covid-19, S&P Global Ratings said on Aug. 5.

The strong second-quarter results of Singapore’s big three banks show the country’s banking sector is on track for significantly improved earnings, a brightening business outlook, and normalizing credit costs, as per the rating agency.

“Singapore banks are clear beneficiaries of strong macroeconomic tailwinds. They are benefiting from the economic rebound in the United States and China in particular,” said Rujun Duan, S&P Global rating credit analyst.

“Resurging working capital and investment demand from corporate clients, a vigorous mergers and acquisitions market, and a resilient consumer sector in Greater China and Singapore put them in a sweet spot for more lending opportunities.”

Effective pandemic containment and high vaccination coverage in Greater China and Singapore are reducing downside credit risks in those markets. The regions account for about three-quarters of Singapore banks’ loan books.

Singapore banks’ diversified business profile is also helping this rebound. The institutions’ non-interest income, such as fees and commissions, are rising sharply. The banks’ wealth management arms and loan-related fees are mainly driving this outperformance. Customer trading gains are also multiplying.

The country’s three biggest lenders — DBS Bank LtdOversea-Chinese Banking Corp Ltd, and United Overseas Bank Ltd — reflect this brightened growth outlook. DBS reported a 54 percent increase (year on year) in net profit in the first half of 2021.

Oversea-Chinese Banking Corp Limited disclosed an 86 percent increase in this measure in the same period while United Overseas Bank Ltd’s net income grew 29 percent.

“Momentum for the full half-year has been extraordinarily strong, with the second quarter currently as strong as the first quarter,” said Piyush Gupta, CEO, Development Bank of Singapore.

“Loan growth at 3 percent in each quarter was actually far more than what we anticipated, and the good news is that it was diversified.”

Singapore banks’ exposure to Greater China and Singapore is also bolstering their asset quality. The institutions are making a smooth transition away from debt moratoriums offered to pandemic-hit borrowers in those two markets, as Covid-19 caseloads are well contained.

Moratorium-supported debt accounts for just low single digits of Singapore banks’ balance sheets.

S&P said Singapore banks will still need to navigate asset quality pressures over 12 to 18 months.

The institutions’ loan books are 10 to 25 percent allocated to neighboring markets in Southeast Asia, which are struggling to contain waves of Covid-19 infections.

Low vaccination rates in those markets have led to repeated lockdowns, reduced near-term economic prospects, and a persistent need for loan repayment moratoriums.

(With inputs from ANI)

Edited by Saptak Datta and Praveen Pramod Tewari