Singapore banks face rising asset risk, slowing income growth: Moody's

SINGAPORE'S three largest banks by assets - DBS, OCBC, and UOB - will face rising asset risk and slowing income growth in 2019 as economic conditions worsen, despite posting record results for the first half-year, Moody's Investors Service said in a report released on Tuesday. 

Simon Chen, Moody's vice-president and senior analyst, said: "DBS, OCBC and UOB posted record net profits, stable asset quality and strong capital for H1 2019, but further improvement in profitability will be difficult amid slowing global growth, and the potential for an escalation of the US-China trade conflict.

"Specifically, we expect income growth to slow because net interest margins will either stagnate or decline, as central banks globally cut rates, while credit costs will rise and loan growth will moderate due to the increasingly uncertain environment."

Income contributions from trading and wealth management will also be volatile, amid softer market sentiment, said the report.

The credit ratings agency said non-performing loan ratios remain low for all three banks, and were unchanged at 1.5 per cent at the end of June as compared to the same period last year, but added that this "will deteriorate amid rising volatility". 

That said, all three banks continue to report robust capitalisation and liquidity, Moody's noted. The three banks' Common Equity Tier 1 (CET1) ratios remained strong, at around 13.6 per cent to 14.4 per cent as at end June this year, Moody's said. 

In addition, capital ratios should remain above 13 per cent in 2019, within the banks' target ranges of around 13 per cent to 13.5 per cent, supported by robust retained earnings.

Moody's added that the banks' US dollar liquidity will improve, and that funding costs will moderate if rates continue to decline following the recent Federal Reserve rate cut of 25 basis points.