Singapore banks' regional expansion raises risks: Fitch

Singapore banks' regional expansion raises risks: Fitch

Bloomberg, Singapore

Singapore banks' expansion into countries including Indonesia,
Thailand and India has increased their credit and operational
risks, Fitch Ratings said.

DBS Group Holdings Ltd., United Overseas Bank Ltd. and
Oversea-Chinese Banking Corp., the island's three largest banks
by assets, have made acquisitions overseas in the past year in a
bid to counter declining business at home, moves which have
raised their risk profiles, said Ambreesh Srivastava, managing
director for financial institutions in Asia at Fitch.

"Most of these expansions are in countries that are less
developed and certainly less regulated than Singapore,"
Srivastava said at a media briefing in the island-nation.

"There are incremental risks that come about because of the
expansion into such markets."

The three lenders have been expanding in the region as
competition intensifies in Singapore's limited market of about 4
million people.

DBS Group said last week it plans to buy a 37.5 percent stake
in India's Cholamandalam Investment & Finance Co. Oversea-Chinese
said earlier this month it completed the purchase of its stake in
Indonesia's PT Bank NISP.

United Overseas Bank Ltd. had its ratings cut one level by
Moody's Investors Service in April because of concerns about
increased risks as it expands in Asia.

Still, Fitch said it's keeping a stable outlook rating for the
banks because of their strong financial positions as well as
risk-management capabilities.

It will review ratings if the banks undertook expansion
strategies that would significantly reduce capital, Srivastava
said.

"On the positive side, we believe that banks have learnt
lessons from some of their experiences in the past and have
considerable beefed up their risk-management systems and also
their management abilities," he said.

"They are in a much better position now to negotiate with such
risks."

Even so, banks will eventually hold less capital with the
implementation of the Basel II accord capital-adequacy rules,
David Marshall, head of banks and financial institutions for
Fitch in Asia, said in an interview.

"Basel II will reduce the amount of capital banks need to hold
against relatively save assets, in particular mortgage lending in
fairly stable economies," Marshall said.

"That means banks can charge relatively lower interest rates
and still keep an adequate return on equity. The banks will find
that they need a lot less capital going forward."

Singapore banks are currently required to maintain a capital
adequacy ratio of at least 10 percent, more than the 8 percent
international standard.

The city's lenders already have capital in excess of the
minimum required, with DBS Group's ratio standing at 15.8 percent
at the end of last year.

The Basel II rules will replace 1988 rules that require banks
to set aside about 8 U.S. cents for every $1 they lend.

The proposed regulations will obligate banks to earmark money
depending on the loan risk.