Singapore banks amongst most vulnerable in SEA to COVID-19 impact

Their exposure to Chinese banks poses a threat.

Singaporean banks are amongst the sectors expected to be hardest-hit by the COVID-19 outbreak, along with Thailand, Fitch Ratings said in a note.

Even before the outbreak, the banks’ outlook was already negative, with a potential for further asset quality and profitability weakness, added Fitch.

Singaporean banks' direct exposure to greater China, which averages 24% of gross loans, is a potential area of stress. On the other hand, local banks’ exposure to China mainly comprises low-risk assets, which include lending to top-tier corporations, short-term trade loans or liquidity placements with major Chinese banks. But the slowdown in economic activity will still test Singapore banks’ resilience.

Their exposure to Hong Kong, which forms 13% of gross loans, could also be hit, given the more fragile state of the Hong Kong economy and the exposure being more diverse than in China.

Despite this, local banks have sufficient loss-absorption buffers to withstand this pressure, according to Fitch. The announced relief measures should also alleviate near-term asset quality and profitability pressures.

These measures include a moratorium on principal repayments for 6-12 months on SME property loans and some retail mortgage loans.

Meanwhile, Thailand's dependence on tourism meant that the SME sector, which accounts for 33% of banks' portfolios, is likely to be significantly affected by the COVID-19 outbreak. In the near term, the impact on non-performing loans (NPLs) should be mitigated by the banks' high excess provisions, adequate capital buffers, and their own set of relief measures.