Singapore bank loans to grow by 10%:Moody's

Banks are expected to produce solid profits during the next 12 to 18 months against a backdrop of moderate and sustainable GDP growth.

In a statement, Moody's Vice President, and the lead analyst for Singaporean banks, Christine Kuo, said: "The stable outlook reflects the good asset quality, sustainable profitability, strong capital, and ample liquidity among Singapore's three domestic banking groups".

Moody's expects net interest margins to go down in 2H201; however, this will be relived by the growth in overseas market according to Kuo.

The report notes moderate growth in fee and commission income and moderate fluctuation in investment and trading income. It also notes strong capital levels, which will accommodate Basel III and provide a strong enough buffer for stress scenarios.

A low reliance on wholesale funds and a very liquid balance sheet will reduce funding risk in the event of market turmoil.

"In our view, the banks' funding positions will remain resilient in a challenging market, as they did in the recent global financial turmoil, and compliance with Basel III liquidity ratios will go smoothly for the three banking groups," says Kuo.

However, on the downside, a weakening in the global economic and financial recovery could drag down the growth of Singapore's export-dependent economy.

"This would adversely affect the banks' exposures to the manufacturing and trade-related sectors," says Kuo.

"In addition, should the government fail to keep property prices in check, the country's already booming real estate market could develop into a bubble that could adversely affecting the banks' real estate exposures," she adds.

Moody's rates four banks in Singapore: DBS Bank Ltd; Oversea-Chinese Banking Corporation Ltd; United Oversea bank Ltd; and Bank of Singapore, which is a fully owned subsidiary and the private banking arm of OCBC.

The stable outlook for the banking industry is consistent with the rating on the Singaporean government and the rated Singaporean banks.