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Singapore banks buffered by selective lending in China: Fitch

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Singapore banks are likely to record just slightly weaker growth in profit in the year ahead, buffered by a diversification in their business, and selective lending in China, a Fitch Ratings report said on Wednesday.

SINGAPORE banks are likely to record just slightly weaker growth in profit in the year ahead, buffered by a diversification in their business, and selective lending in China, a Fitch Ratings report said on Wednesday.

"Banks' selective lending in China - focusing on SOEs (state-owned enterprises), large corporates and short-term trade loans - is (a) protection," said the report, which ranked the lenders here "stable" in the outlook for both their ratings, and the overall sector.

"A key risk lies in banks' exposure to the commodity sector, which has been hit by low commodity prices. We expect modest risk from this sector, given Singapore banks' diversified loan portfolios and steady asset-quality track record," it added.

It noted that the banks' revenue base is diversified, with core non-interest income roughly 38 per cent of operating income. Of that, more than half represented recurring fee income between 2010 and 2014. Fee-based income also grew at a healthy clip, thanks to the burgeoning wealth management segment and global transaction banking.

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With the weaker economic environment, credit costs are expected to creep up. The average non-performing asset ratio of the three Singapore banks will rise modestly to 1.1 per cent by end-2015 and 1.2 per cent by the end of 2016, Fitch said. Given higher credit costs, average ROE (return on equity) of the three banks is expected to decline to 11.2 per cent from 11.9 per cent in 2015.

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