S&P Global Ratings said on Thursday that Singapore banks are leading their south and southeast Asian peers in the recovery from Covid.
The strong second quarter results of Singapore's big three banks show the country's banking sector is on track for significantly improved earnings, a brightening business outlook and normalising credit costs.
"Singapore banks are clear beneficiaries of strong macroeconomic tailwinds. They are benefiting from the economic rebound in the United States and China in particular," said S&P Global Ratings credit analyst Rujun Duan.
"Resurging working capital and investment demand from corporate clients, a vigorous mergers and acquisitions market, and a resilient consumer sector in Greater China and Singapore put them in a sweet spot for more lending opportunities."
Effective pandemic containment and high vaccination coverage in Greater China and Singapore are reducing downside credit risks in those markets. The regions account for about three-quarters of Singapore banks' loan books.
Singapore banks' diversified business profile is also helping this rebound. The institutions' non-interest income such as fees and commissions are rising sharply. The banks' wealth management arms and loan-related fees are largely driving this outperformance. Customer trading gains are also rising quickly.
The country's three biggest lenders -- DBS Bank Ltd, Oversea-Chinese Banking Corp Ltd and United Overseas Bank Ltd -- reflect this brightened growth outlook. DBS reported a 54 per cent increase (year on year) in net profit in the first half of 2021.
OCBC disclosed an 86 per cent increase in this measure in the same period while UOB's net income grew 29 per cent.
Singapore banks' exposure to Greater China and Singapore is also bolstering their asset quality. The institutions are making a smooth transition away from debt moratoriums offered to pandemic-hit borrowers in those two markets, as Covid caseloads are well contained.
Moratorium-supported debt accounts for just low single digits of Singapore banks' balance sheets.
S&P said Singapore banks will still need to navigate asset quality pressures over the next 12 to 18 months. The institutions' loan books are 10 to 25 per cent allocated to neighbouring markets in southeast Asia, which are struggling to contain waves of Covid infections.
Low vaccination rates in those markets have led to repeated lockdowns, reduced near-term economic prospects and a persistent need for loan repayment moratoriums.
( With inputs from ANI )
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