Friday 29 Mar 2024
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SINGAPORE (Feb 21): Singapore’s local banks of ‘AA–‘ credit ratings and Stable Outlooks will continue to be supported by their adequate profitability, disciplined funding and liquidity and strong capitalisation, despite weaker asset quality, says Fitch Ratings.

In the Singaporean Banks Report Card 2016 published on Monday, the ratings agency says the credit profiles of the three banks — DBS Group Holdings (AA-/F1+/Stable), United Overseas Bank (UOB, AA-/F1+/Stable) and Oversea-Chinese Banking Corp (AA-/F1+/Stable) — stayed resilient in 2016 in the face of a challenging operating environment and continued weakness in the offshore services sector, which pressured the banks' asset quality and profitability.

The combined weighted-average NPL (Non-Performing Loan) ratio for the three banks had risen to 1.40% by end-2016, from 1.06% in the previous year.

The weighted-average provision buffers as a proportion of NPLs declined to 101.5% from 130.8% over the year, although at above 100% on average they still provide a large buffer against further credit slippage.

Asset quality for the non-oil and gas sector remained strong. There were no significant signs of weakness in exposure to greater China or the small- to medium-enterprise sector and housing-loan quality remained solid.

Entrenched domestic deposit franchises remain one of the banks’ strengths, with Singapore dollar liquidity coverage ratios remaining in excess of 200% for the previous three quarters. The banks' all-currency liquidity coverage ratio averaged a comfortable 146.6% in 4Q16.

The banks’ core capitalisation ratios strengthened modestly, with fully-loaded core equity Tier 1 ratios ranging from 12.1% to 13.3% at end-2016. This was aided by scrip dividend schemes for DBS and UOB, slower risk-weighted asset growth and healthy internal capital generation.

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