Singapore banks to remain under pressure despite recent loan recovery

Woes concerning oil and gas are also not over.

Whilst there is general optimism seen in the ASEAN banking sector, Singapore banks will continue to face challenges and remain under pressure.

According to BMI Research, Singapore banks will continue to face a difficult operating environment owing to a weaker economic outlook and their oil and gas exposures.

This is despite a slight recovery in loans growth to 5.2% y-o-y in February, from a low of -2.7% YoY in June 2016.

"We expect Singapore's economic growth to continue to be undermined by a shortage of skilled labour as a result of the government's restructuring efforts while external conditions remain uncertain due to the structural slowdown in the Chinese economy. All these factors will therefore keep Singapore's loan growth relatively subdued over the coming months," BMI said.

In addition, the NPL ratios of Singapore's three big banks are still on an uptrend.

"We expect asset quality to remain under pressure due to their oil and gas exposures. The financials of small and medium-sized companies in the oil and gas sector are still feeling the negative effects from the significant decline in oil prices, and it is likely that banks will have to raise their allowances further," the firm noted.