Moody’s Ratings has affirmed a stable outlook for Singapore’s banking system, highlighting the country’s robust economic conditions and strategic diversification. The report, released today, underscores the resilience of Singapore banks amidst geopolitical tensions and economic fluctuations in the Asia-Pacific region.
Singapore’s banking sector is expected to maintain a stable operating environment, supported by strong domestic consumption and supply chain relocations from North Asia. Moody’s anticipates Singapore’s real GDP growth to normalise to 2%-3% in 2025, providing a solid foundation for the banks’ operations.
Asset quality remains a focal point, with problem loan ratios projected to stay between 1% to 2% in 2025. Despite risks associated with commercial real estate in Greater China, Singapore banks’ prudent risk management and robust credit reserves are expected to mitigate potential impacts. “Geopolitical tensions and rate cuts will have diverse effects on the operating environment of banking systems across APAC, but steady capitalisation, funding and liquidity will help many APAC banks withstand fundamental pressures,” said Chong Jun Wong, Assistant Vice President at Moody’s Ratings.
Profitability is set to remain stable, with return on average assets forecasted at 1.3% in 2025. The banks’ wealth management activities continue to drive strong fee income growth, offsetting modest declines in net interest margins.
The capital levels of Singapore’s three largest banks are expected to moderate due to higher distributions through special dividends and share buyback programmes. However, their capital ratios remain robust, providing opportunities for further overseas acquisitions.
Funding and liquidity are anticipated to remain strong, bolstered by a concentrated domestic deposit market and competitive regional banking franchises. The probability of government support for Singapore’s largest banks remains high, reinforcing their stability in times of need.
In summary, Singapore’s banking system is well-positioned to navigate the challenges posed by global economic uncertainties, thanks to its strategic diversification and strong risk management practices.
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