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MOODY'S Investors Service has upgraded its long-term rating of Singapore's three large banking groups to "stable" as solvency pressures become manageable, even as it downgraded baseline credit assessments (BCA) and subordinated debt and capital instrument ratings.
"The outlook on the long-term ratings of DBS, DBS Holdings, OCBC and UOB was revised to stable from negative, reflecting Moody's view that further solvency pressure will be manageable for these financial institutions," the ratings agency said in a Dec 14 release.
Th agency downgraded its ratings outlook for the Singapore banks to negative in March. Its latest move followed the US Federal Reserve's decision on Wednesday to increase interest rates by 25 basis points. Observers before this have suggested a rate hike will affect financial stability.
Moody's flagged in the Dec 14 release that weakening solvency metrics - namely asset quality and profitability - have contributed to the BCA downgrades to a1 from aa3. Subordinated debt and capital instrument ratings for the banks have also been downgraded by a notch.
"The ongoing credit challenges that these banks face at home and broadly in Asia - where they have around 50 per cent of their loans - have translated into higher problem assets this year," it wrote. It thus expects more negative pressure on asset quality in 2017 to affect profitability due to higher credit provisions.
But despite these downgrades, Moody's expects the Singapore government to support these banks if needed.
It deems the government as having a strong incentive to prevent losses to senior creditors of any of these banks, because they represent a combined market share of 63 per cent in Singapore dollar deposits.
"The failure of any one institution could create large knock-on effects on the entire banking system and economy," it wrote.