Local bank ratings outlooks held at negative: Moody's

State of economy still poor and loan defaults may rise

(SINGAPORE) Singapore bank ratings outlooks are held at negative even as profits improve as the state of the economy is still poor and there is a risk that loan defaults may rise, Moody's Investors Service said in a report yesterday.

Operating profits at DBS Group Holdings Ltd, Oversea-Chinese Banking Corp Ltd and United Overseas Bank Ltd rose in the second quarter primarily because improved capital market conditions drove up revenue from brokerage and wealth management, Christine Kuo, a senior analyst at Moody's, said in the report. Banks' asset quality weakened and credit costs rose.

'The Singaporean economy, in common with many others in the region, has yet to recover even though there have been signs of improvement,' says Ms Kuo, who is based in the city-state. 'Until the economies begin to revive, Singaporean banks' asset quality and earnings are likely to remain pressured.'

Singapore emerged from its deepest recession in half a century in the last quarter as its economy grew an annualised 20 per cent from the first three months of the year. Prime Minister Lee Hsien Loong said on Aug 16 that a record S$20 billion of fiscal stimulus spending unveiled in January will not have to be extended.

Moody's said that the non-performing loan ratios of Singapore's three banks, which have edged higher since the end of last year, could rise further and earnings may not be sustainable at current levels 'since these sources of revenues are sensitive to market turbulence'.

Singapore's Straits Times Index has risen 47 per cent this year, with companies including Olam International Ltd - the Asia-Pacific region's biggest food distributor - and motor parts retailer Jardine Cycle & Carriage Ltd as the biggest movers. -- Bloomberg

Source: Business Times, 26 Aug 2009