The future of the Asian banking industry and Singapore banks is negative due to an expected significant growth in non-performing loans (NPLs) in the midst of increasing corporate defaults, Moody’s Investors Service reports.

Deborah Schuler, group credit officer and senior vice-president for Asian financial institutions at Moody’s, says that for Singapore banks, NPL will be in its highest point sometime in 2010.

The recently released Moody’s yearly Asian Banking System Outlook, covering 16 jurisdictions, notes that loan demand has weakened in Singapore, while the credit costs are increasing as the borrowers’ ability to repay has been affected gradually.

The negative outlook of Moody’s for Singapore banks has been based in two accounts, the long-term deposit and debt ratings, and the financial strength ratings.

Schuler also comments that the multinational corporations (MNCs) in the country experience higher risk of defaults compared to big local companies, many of which are Temasek-linked firms.

For Asian banks as a whole, Moody’s anticipates further decline of earnings as asset quality weakens and loans growth decreases, pushing NPLs higher.

Moreover, there is also doubt on whether the latest surge of health across Asia can produce enough levels of consumption that can compensate for the lower demand from the US and other developed countries.

However, Moody’s bank ratings in most Asian territories and countries, which include Taiwan, Philippines, China, Hong Kong, Australia, New Zealand, Indonesia and Cambodia are still stable as they have faced this crisis with stronger liquidity and capital, as well as enhanced risk management.