Singapore banks' credit costs to rise 5bp in 2020

The IFRS9 will require banks to set aside for anticipated losses.

Despite healthy capital positions, banks in Singapore are set to face a modest 5bp increase in credit charges by 2020, according to Maybank Kim Eng.

Also read: Singapore's big three banks' CET1 ratios hit 14% in 2018

“[T]he known unknown is the impact of IFRS9, which will require pro-cyclical provisioning. We think any major asset-quality distress may result in higher-than-expected credit charges,” analyst Thilan Wickramasinghe said in a report.

The domestic banking sector’s credit charges fell to a 12-year low in 2018 although analysts are expecting headline figures to rise over the coming months amidst worsening macro-economic conditions.

Also read: Bad loans haunt Singapore banks as asset quality risks mount

In Q4, OCBC and UOB saw non-performing loan (NPL) formation of 137bp from 53bp in Q3 and 94bp from 75bp and stepped up write-offs of 49bp and 67bp respectively, according to an earlier report from UOB Kay Hian.

OCBC, in particular, is likely to face a more difficult time than its peers as it has to account for its US$122.7m exposure to troubled oil supplier Coastal Oil Singapore. In comparison, DBS and UOB are both owed US$29.9m and US$19.5m.

Despite the muted outlook, Maybank’s Wickramasinghe expects bank NIMs to rise by a modest 5-6bp despite a 76bp increase in funding costs for 2019. Banks loans are also expected to grow 6% amidst strong growth from regional markets.