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S&P Global Ratings has affirmed the credit rating of the three Singapore banks on their sound fundamentals.
The credit rating agency said on Wednesday that the sound financial profiles of the three Singapore banks that it rates should buffer against further pressure on their asset quality, particularly from upstream oil and gas (O&G) exposures.
It said that it expects DBS Bank, OCBC and United Overseas Bank to maintain adequate capitalisation, sound liquidity profiles and provisioning buffers, which they had built over many years.
"We are affirming the 'AA-' long-term and 'A-1+' short-term issuer credit ratings on the three Singapore banks. We are also affirming the 'axAAA/axA-1+' Asean regional scale ratings on the banks," it said.
The outlooks on the issuer credit ratings are stable, S&P added.
"We affirmed the ratings because we believe Singapore banks are coming from a position of strength, and have sufficient buffers against downside risks," it said.
Net profits of Singapore banks have lost some momentum due to weakening asset quality and higher provisioning costs, it said.
The non-performing loan (NPL) ratio of these banks increased to 1.4 per cent in 2016, from 1.1 per cent in 2015, S&P noted.
"The bulk of new NPLs originated from the vulnerable O&G support services sector. We believe that O&G-related NPLs are not yet over," it said.
"Although the rally in oil prices to US$50 per barrel - from the January 2016 low of US$28 - is positive, it is unlikely to resurrect the offshore O&G services industry," said S&P.
Loan exposures outside the offshore O&G support industry have continued to perform well, and will likely continue to remain so in 2017, it added.
The three banks have been outperformers on the local bourse - their stocks have risen between 15 per cent and 21 per cent so far this year.
The benchmark Straits Times Index is up 12 per cent year-to-date.