Outlook for Singapore banks negative: Moody's

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MOODY'S Investors Service says the outlook for Singapore banks and the Asian
banking industry is negative as it expects a substantial increase in
non-performing loans (NPLs) amid rising corporate defaults.

For
Singapore banks, 'NPL will peak sometime next year', said Deborah Schuler,
Moody's senior vice-president and group credit officer for Asian financial
institutions.

Ms Schuler was speaking at the release of Moody's latest
annual Asian Banking System Outlook, which covers 16 jurisdictions.

In
Singapore, loan demand has softened, while credit costs are rising as the
ability of borrowers to repay has been gradually impacted, the report says.
Market-sensitive income is also likely to remain volatile.

These banks
have seen an increase in NPLs in the fourth quarter of 2008 and the first
quarter of this year. More NPLs are likely to come from corporate defaults, Ms
Schuler noted, as the increase in credit cards delinquencies has been minor and
remains lower than the levels seen three to four years ago.

Moody's has
negative outlook for Singapore banks on two counts: the financial strength
ratings, and long-term deposit and debt ratings. But it has a stable outlook
on country ceiling for foreign currency bank deposits.

The combined
assets of the three local banks represented 241 per cent of gross domestic
product (GDP) at end-2008.

Ms Schuler noted that the multinational
corporations (MNCs) here face higher risk of defaults than big local firms,
many of which are Temasek-linked companies. It remains unclear how many of
these MNCs were picked up as clients by local banks last year when troubled
foreign banks pulled back on some of these MNCs.

But even in a severe
downturn, Moody's expects the banks 'to remain solidly positioned within the Aa
rating band' thanks to their strong franchises, healthy credit profiles,
well-capitalised balance sheets and strong support from the government, the
report says.

For Asian banks as a whole, Moody's expects further
deterioration of earnings as loans growth shrinks and asset quality weakens,
driving NPLs higher.

'Such developments should not be a surprise, given
bad loans typically lag GDP numbers,' the Moody's report says.

The
rating agency has a negative outlook for the banking industry in the region
given the uncertainty of a swift economic recovery.

There is also the
uncertainty of whether the recent surge in wealth across Asia can generate
sufficient levels of consumption to compensate for the lower demand from the
United States and other developed economies.

'Asians save a lot of money
and if they start spending, it would help,' Ms Schuler said. 'Unfortunately,
what we are seeing in Asia is that governments are trying to stimulate the
economies but consumers are worried and are hanging onto their cash and putting
it in banks.'

The region's very high levels of single-borrower
concentrations also raise asset quality risk. Moody's recent survey of
single-client exposures at banks in Asia (ex-Japan) shows their credit
portfolios as significantly more concentrated than those in North
America.

But Moody's bank ratings in most Asian countries and
territories - including Hong Kong, China, New Zealand, Australia, Cambodia,
Indonesia, Philippines and Taiwan - remain largely stable as they have entered
this crisis with stronger capital and liquidity, and improved risk
management.

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