SINGAPORE BANKS ASSETS QUALITY IS WORSENING WITH THE BEARISH FITCH

Total exposure to O&G quarter stood at $16.1bn or 17% of core capital.

Fitch has revised its quarter outlook for Singapore banks to unfavorable, in view of soft macroeconomic conditions that it expects to persist in 2017.

This, it said, may place broadening pressure on asset quality and lower earnings over the following year.

The ratings corporation notes that Singapore banks’ solid credit  profiles – characterized via regular investment and liquidity positions, sturdy loss-absorption buffers and wholesome profitability – assist its stable outlooks for their ratings.

Here's more from Fitch:

Credit-quality Pressures continue to be: Key pressure lies within the oil & fuel quarter which we expect will continue to exert mild strain on banks’ asset asset in 2017. Extended economic weakness could result in broader asset-quality risks which might also have an effect on small- and mediumsized businesses.

Banks’ targeted lending in China: Focusing on top-tier state-owned enterprises (SOEs), large corporates, foreign investment enterprises and short-term trade loans – suggests risk from China would be well-contained on the whole. On the housing loan front, we believe proactive macro-prudential measures and strong household balance sheets should contain the risk of a sharp deterioration in loan quality.

Softer Profitability: We expect banks’ profitability to weaken slightly in 2017, driven by higher credit costs and a subdued domestic lending environment. This is balanced, however, by their diversified revenue, with core non-interest income forming close to 40% of operating income – of which more than half represented recurring fee income over 2012-2015.

Solid Capitalisation: Singapore banks’ capital standing remains solid, with fully loaded CET1 ratios ranging between 12.4%-13.5% at end-September 2016. We expect capitalisation to remain stable despite modestly higher risk-weight charges that will affect the banks from 1 January 2017, aided by healthy internal capital generation. 

Disciplined Funding: We expect Singapore banks to retain their domestic deposit franchise strengths. Their sound Singapore dollar LCR stood in excess of 200% for 3Q16, and their Singapore dollar loan-deposit ratios had improved to 86.0% by end-September (June: 88.7%, March: 87.2%). The banks’ all-currency LCR averaged a comfortable 132% for 3Q16. 

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