Escalating forex woes rock local banks

ASEAN currencies are the weakest link.

Singapore’s largest lenders are under threat from the unabated weakness in regional currencies, according to a report by RHB Research.

Despite their significant exposure to China and Hong Kong, RHB noted that CNY devaluation will not have a material direct impact the banks’ loan books.
RHB said that weak ASEAN currencies should be a greater cause for concern rather than keeping an eye on the CNY.

“Broadly, the fall in regional currencies would impact SG banks in [terms of[ lower profit contributions from regional operations; dampening effect on loan growth at group level; and possible translation losses in shareholders’ equity,” said RHB.

“We believe the bigger concern for banks is the slowing Chinese economy and its knock-on effect on regional growth. In 1H15, SG banks reported flattish loan growth as credit demand was hurt by slowing economies and depreciation of regional currencies. While asset quality remained resilient, the softening growth outlook would see certain sectors come under stress. Our earnings forecasts have taken into account subdued loan growth, stable net interest margins in 2H15 and higher credit cost,” the report added.