Moody’s downgrades Singapore banking system outlook to ‘negative’

[CityFarmer]

I personally skeptical on the report and downgrade...

Moody’s downgrades Singapore banking system outlook to ‘negative’

SINGAPORE--Moody’s Investors Service has changed the outlook for Singapore’s banking system to negative from stable, citing the recent period of rapid loan growth and rising real estate prices in Singapore and in regional markets where the three local banks are active.

These factors have increased the probability of deterioration in credit quality under potentially adverse conditions for the banks in the future.

The report, “Singapore Banking System Outlook,” details Moody’s expectations of how bank creditworthiness will evolve over the next 12-18 months.

http://www.todayonline.com/business/mood...k-negative

[BlueKelah]

sounds about right, thats why gamen is coming out with so many cooling measures to avoid something like the 2009 US bubble

[corydorus]

After driving Banking stock skyhigh, this statement comes .... (feel fishy)

[l0nEr]

Should look at the full announcement:
http://www.moodys.com/research/Moodys-ch...-PR_277795

"The operating environment for Singapore's banking system has been favorable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region. With the potential risk of a turn in the interest rate cycle, we view strong asset inflation and credit growth trends as vulnerabilities, as this combination would likely cause credit costs to rise from their current low base," says Gene Fang, a Moody's Vice President and Senior Analyst.

While Singapore banks have improved their non-performing loans (NPLs) over the past few years, asset quality has potentially peaked both at home and in many of the regional markets in which these banks operate. A turning point in the credit cycle is likely to lead to a worsening of NPL ratios and higher credit costs.

Although it is difficult to exactly predict turning points in banking credit cycles, Moody's believes the increased likelihood of a tightening of monetary policy by the US -- with a higher probability of a tapering of quantitative-easing during the outlook period -- is a potential trigger.

I think they are just warning that the NPL ratios have a hit a bottom for Singapore banks and could turn higher from now on. I believe this have been warned by other equity analysts too, especially now that some of the local banks (except for UOB) have reported NPL ratios of <1%. If the interest rates rises, small companies might be affected. Besides, the strengthening USD may also cause companies that rely on USD imports or borrow in USD to be in trouble. Another issue is also with the government's productivity drive. This may push small companies which may rely a lot on foreign workers into trouble.
Its quite true that NPL ratios cant keep going lower, since it tends to revert to mean. The question is when that will be happening, and in this case, Moody's seems to be think that rising UST will be the trigger. However, this does not mean that banking equities will not go higher, since the rising yields may potential lead to higher net interest margins in the future (albeit limited by falling mortgage rates). Moody's is probably coming more from a credit perspective, since they are a rating agency after all.