Credit rating agency Fitch Ratings places the three Singaporean banks’ Long-Term Issuer Default Ratings (IDRs) and Viability Ratings (VRs) on Rating Watch Negative on the back of the impact of the coronavirus. Fitch kept the credit rating of DBS, OCBC and UOB unchanged at AA-.
It expects the coronavirus to negatively impact Singapore’s economy in 2020, with a possible recovery starting in the second half of 2020 if the crisis subsides. The negative impact of the coronavirus will put pressure on the banks’ asset quality and earnings. Fitch mentioned that while the Singapore central bank stimulus measures would support the banks through 2020, 2021 would show signs of weakness for the three banks. It forecasts impaired-loan ratios of around 2.5% for the large three banks, up from around the current 1.5%.
DBS, OCBC and UOB remain largely deposit funded, with funding and liquidity a key strength for the banks. The Singapore central bank, Monetary Authority of Singapore has also offered support in the form of a USD 60 billion swap facility, which should help the three banks amid the crisis. The rating agency expects a flight-to-quality among depositors not just locally but also from other countries in the ASEAN region, which will bode well for the high-rated banks.
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