Dec 17, 2015

    Slightly weaker profit growth likely for banks here next year

    SINGAPORE banks are likely to record just slightly weaker growth in profit in the year ahead, buffered by a diversification in their business and selective lending in China, a Fitch Ratings report said yesterday.

    "Banks' selective lending in China - focusing on (state-owned enterprises), large corporates and short-term trade loans - is (a) protection," said the report, which ranked the lenders here "stable" in the outlook for both their ratings and the overall sector.

    "A key risk lies in banks' exposure to the commodity sector, which has been hit by low commodity prices. We expect modest risk from this sector, given Singapore banks' diversified loan portfolios and steady asset-quality track record," it added.

    It noted that the banks' revenue base is diversified, with core non-interest income roughly 38 per cent of operating income. Of that, more than half represented recurring fee income between 2010 and 2014.

    Fee-based income also grew at a healthy clip, thanks to the burgeoning wealth management segment and global transaction banking.

    With the weaker economic environment, credit costs are expected to creep up. The average non-performing asset ratio of the three Singapore banks will rise modestly to 1.1 per cent by the end of this year and 1.2 per cent by the end of next year, Fitch said.

    Given higher credit costs, the average return on equity of the three banks is expected to decline to 11.2 per cent from 11.9 per cent this year.