Banking crisis? Singapore banks on sound footing

SINGAPORE banks are in for tough times in 2016, but a collapse of the banking sector is unlikely, despite alarmist calls from a few hedge funds in recent weeks. Investors who fear a banking crisis should take heart that Singapore banks follow stringent and unique domestic standards when setting aside reserves for bad loans.

All banks create reserves, known as allowances or provisions, for lending that is under stress. This is reflected on their income statement, and is a drag on earnings. There are two forms of provisions. One is known as a specific provision that, as the name suggests, is a portio…