SINGAPORE: The Republic's banking industry is in good shape, with the prudential and regulatory frameworks for banks here "remaining strong" and regulator Monetary Authority of Singapore (MAS) continuing to be proactive in its oversight, says Fitch Ratings.
Local regulatory standards are "progressing apace with global best practices", the ratings agency said in its report on the local banking system on Thursday (Aug 28). For instance, banks here have maintained high capitalisation under MAS' Basel III rules - which is 2 percentage points above those prescribed by the Basel Committee.
Another example is how the three local banks - DBS Bank, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) - will need to meet a minimum core Tier 1 capital adequacy ratio (CAR) of 9 per cent, Tier 1 CAR of 10.5 per cent and total CAR of 12.5 per cent. Fitch says the banks already meet these requirements as of end-June 2014.
"The three banks' funding positions are also sound, underpinned by their stable local deposit franchises. This places them in good stead to meet MAS' new liquidity coverage rules, which will apply from Jan 1, 2015," it said.
AREAS TO NOTE: OFFSHORE EXPANSION, PROPERTY LOANS
However, there are also areas to take note of in the industry. Fitch said the competitive and mature domestic market means local banks are continuing to diversify and expand overseas.
Loan growth has been high in recent years, and the ratings agency expects regional growth to increase the local banks' risk profiles as operating and regulatory environments in many of these emerging markets are still developing.
"The Singapore banks have modest capacities to compete with more entrenched domestic banks in these countries," Fitch said. "However, the banks have generally been disciplined in their offshore expansion thus far."
Additionally, Fitch expects MAS to maintain a close watch over the high property lending exposure of local banks. It acknowledged cooling measures have been introduced since 2009 to curb rising housing loans and property exposure.
"These measures, together with the banks' satisfactory underwriting standards, should serve to mitigate the build-up of systemic risk due to property exposure in the banking sector," said the agency. - CNA/kk
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