Singapore banks at risk as Greater China loans surge: Fitch

Mainland loans have almost doubled since 2010.

Singapore banks are becoming increasingly at risk amid increasing loans to Greater China. Loans to the mainland made up about 15% of gross loans at the end of 2013, as opposed to just 8% at the end of 2010.

According to a report by Fitch Ratings, local banks’ mainland China credit exposures, including interbank assets and investment securities, are about 12%-13% of total assets.

Though this is still reasonable relative to their overall balance sheets, rising China-related exposure will make Singapore banks more sensitive to volatility in the region.

“The longer-term strategy for the Singapore banks will be to broaden and deepen their banking relationships in mainland China and Hong Kong. A rising proportion of China-related exposure will make the banks increasingly sensitive to the region’s more variable operating conditions. The NPL ratio for the local banks’ aggregate Greater China ex-Hong Kong portfolio is currently lower than that for their overall loan portfolio, but rose materially higher during the 2008-2009 recession. Therefore, careful risk selection and robust operational controls will remain crucial in managing the potential volatility from a growing China portfolio,” noted the report.