Singapore's three largest bank by assets face rising asset risk in 2019 amid a weakening macroeconomic environment, despite their record results for 1H 2019, said Moody's Investors Service.
The three banks are DBS Bank Ltd. (DBS, Aa1/Aa1 stable, a1), Oversea-Chinese Banking Corp Ltd (OCBC, Aa1/Aa1 stable, a1) and United Overseas Bank Limited (UOB, Aa1/Aa1 stable, a1), according to the credit rating agency.
DBS, OCBC and UOB posted record net profits, stable asset quality and strong capital for 1H 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, said Simon Chen, a Moody's VP and senior analyst.
"Specifically, we expect income growth to slow because net interest margins (NIMs) 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," he noted.
Income contributions from trading and wealth management will also be volatile, amid softer market sentiment, the credit rating agency said.
Nevertheless, all three banks continue to report robust capitalization and liquidity. The three banks' Common Equity Tier 1 (CET1) ratios remained strong, at around 13.6%-14.4% at the end of June 2019, Moody’s observed.
Capital ratios should remain above 13% in 2019—within the banks' target ranges of around 13.0%-13.5%—supported by robust retained earnings, the firm added.
Finally, the banks' US dollar liquidity will improve and funding costs will moderate if rates continue to decline following the recent Fed rate cut by 25 basis points, Moody’s noted.
Amid the escalating US-China trade war, Singapore cut its economic growth outlook for this year on Tuesday to 0.0%-1.0% from the previous estimate of 1.5%-2.5%.