Singapore banks are safe from systemic risks for now: analysts

Will the rebound in oil prices hold?

The city-state’s banks have long been plagued by non-performing loans brought about by the renminbi’s devaluation and the continuing plunge of crude oil prices.

However, now that both factors are recovering, UOB Kay Hian said systemic risks appear to have receded as a threat for Singapore’s financial institutions.

“Spreads for credit default swaps for Singapore banks have pulled back. We re-calibrate our NPL estimates from a bottom-up basis and restoe our 2016 net profit forecasts for DBS by 31% and for OCBC by 18%,” UOBKH said.

Meanwhile, while crude oil prices have rebounded by 58% in March, a sustained recovery remains elusive and prices have also currently dipped to US$36.90/bbl.

“The International Energy Agency (IEA) suggested crude oil prices could have “bottomed out” in its Oil Market Report dated 11 Mar 16. The biggest swing factor is non-OPEC production, which is starting to be affected by lower prices and past spending curbs,” UOB Kay Hian said.