Why Moody's recent woes about Singapore banks are not new

There's a bigger problem ahead.

According to CIMB, Moody's has placed the Singapore banking sector on a negative outlook premised on the recent rapid loan growth and rising real estate prices in Singapore and in markets where the Singapore banks are active. 

Moody's holds the view that these factors have increased the probability of deterioration in the banks' credit profiles under potential adverse conditions in the future.

Here's more from CIMB:

The Singapore banks have been operating in a favourable environment with low interest rates and strong economic growth over an extended period. With the potential risk of a turn in the interest rate cycle, Moody's view is that strong asset inflation and credit growth trends would be vulnerable and this combination would likely cause credit costs to rise from their current low base and hence, outweigh any potential increases in lending margins.

Concerns highlighted are not new; keep watch on unemployment for asset quality risk. The concerns highlighted by Moody's are not new.

We had highlighted previously that a rate hike, a severe macro slow down and more importantly if unemployment issues start to surface, would be possible concerns on asset quality. The Singapore banks' balance sheets remain strong with asset quality robust and capital ratios at high levels.

From our recent conversations with the banks, there is still no stress observed in the banks' portfolios.