Moody's changes outlook for Singapore banks from negative to stable

MOODY'S Investors Service has changed its outlook for Singapore's banking system to stable from negative.

This reflects improving growth conditions and stabilising commodity prices that will limit a further weakening in asset quality and profitability, it said on Wednesday.

"Loan growth will increase mildly but be sustained by the system's strong capital, funding and liquidity buffers," said Eugene Tarzimanov, a Moody's vice-president and senior credit officer.

"Improving growth momentum in Singapore's key trade partners will support export-oriented manufacturers and offset some lingering weaknesses in the local economy," he added.

Moody's believes that credit growth will also rebound to mid-single digits in this outlook, after almost flat growth in 2016.

Asset quality weaknesses have largely peaked, in particular among oil and gas exposures. Although problem loan ratios will still increase moderately, reflecting lingering distress in some local business segments, capitalisation will be supported by mild loan growth, stable profitability and falling credit costs, it said.

This report comes on the heels of S&P Global Ratings last week affirming the coveted "AA-" credit rating of the three Singapore banks on the basis of their sound fundamentals.