Singapore banks have 'good capital buffers' to weather virus outbreak: S&P

SINGAPORE banks are likely to suffer weaker loan growth and more volatile earnings in light of the coronavirus outbreak, but are sufficiently equipped with "good capital buffers" to weather the immediate negative impact, S&P Global Ratings said in a press statement on Monday. 

"The coronavirus outbreak will drag on Singapore's business and consumer confidence, depressing credit demand," said S&P Global Ratings credit analyst Ivan Tan.

Given that Chinese visitors account for about one-fifth of total visitors to Singapore, the epidemic will likely hurt tourist numbers and take a toll on the hospitality, tourism and airline industries, S&P said. 

In addition, retail malls, particularly those in popular tourist shopping belts, could be affected as well, which would hurt consumption spending and loan growth for Singapore. 

"We estimate that the transport and general commercial sectors respectively account for about 4 per cent and 10 per cent of Singapore's domestic loans. This is meaningful exposure, but we believe the impact to banks in the short term will be manageable, given their healthy profit levels and financial strength," S&P explained. 

That said, if the outbreak is stretched beyond a few months, the second-order impact would be more challenging, the ratings agency said. 

"In this scenario, job losses in the tourism and general commercial sectors would cascade to higher delinquencies on credit card receivables and, to a lesser extent, residential mortgage portfolios."

At this stage, there is uncertainty as to whether the authorities will be able to quickly contain the spread of the pathogen, making it difficult to quantify its potential impact, S&P added.

Nonetheless, the ratings agency believes that Singapore banks are facing "near-term headwinds from a position of strength", as they have consistently strengthened their balance sheet. 

"We also consider the government to be highly supportive of the banking sector, and believe it would provide extraordinary intervention to systemically important banks in the event of a prolonged and acute viral outbreak," S&P said. 

Over the weekend, the Singapore government announced that it will provide targeted help to the transport and tourism sectors, which are the most directly affected by the virus. Full details of the relief package will be unveiled at Budget 2020 on Feb 18.

Separately, banks including OCBC, Standard Chartered and HSBC have also shut several branches in Hong Kong and Macau as the virus outbreak escalates, The Business Times understands.