Singapore banks remain resilient
Singapore banks remain resilient
Bloomberg, Singapore
Singapore's three banks remain resilient in the face of a slowing economy, which the government forecasts may expand in 2005 at less than half the pace of last year, the central bank said in a report released on Tuesday.
DBS Group Holdings Ltd., United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. have sufficient provisions, collateral and capital to ward off credit-risk concerns in the short term, the Monetary Authority of Singapore said.
Singapore's US$91 billion economy is forecast by the government to grow between 3 percent and 5 percent this year, from 8.1 percent expansion last year, amid concerns over the impact of high oil prices and a drop in demand for electronics.
"Singapore banks are known to be well-capitalized and they have been very prudent in terms of provisioning," said Seah Hiang Hong, head of research at Kim Eng Securities Pte. in Singapore. "I don't think there's any concern about the health of the financial system."
The bad-debt ratios at the three lenders fell to 5.5 percent in the third quarter of 2004 from 6.2 percent in the first, and more than half the S$11 billion they held as non- performing loans was backed by collateral, the central bank report said.
"The local banks' exposure to the more oil-dependent and technology-related industries such as manufacturing and transport amounted to only a total of around 8 percent of total outstanding loans," the report said.
"The largest non-bank credit risk exposure remained in the household sector, comprising mainly housing loans."
About three-fifths of loans to households are mortgage loans, which typically have low default rates and are well collateralized, the central bank added.
Losses at China Aviation Oil (Singapore) Corp., which in November sought bankruptcy protection from Singapore's High Court, don't pose any systemic risk to financial institutions operating in Singapore, the Monetary Authority said.
China Aviation Oil, a jet-fuel trader that's majority owned by a Chinese state-run company, in November disclosed a $550 million loss from trading derivatives.
Still, Singapore banks face the possibility that an economic slowdown, triggered by a decline in demand for electronics, may hurt household and corporate income and crimp loan growth. Loan growth in September was 10 percent lower than at the start of last year, the central bank said.
Electronics account for more than half of Singapore's non-oil domestic exports, which had their biggest drop in eight months in November. Non-oil domestic exports shrank a seasonally adjusted 9.1 percent from October, the largest fall since March, International Enterprise Singapore, a trade promotion body, said in a Dec. 17 report.
Other risks include a sharper-than-expected slowdown in the Chinese economy and a further decline in the U.S. dollar, which could trigger "substantial volatility in financial markets worldwide," the central bank added.