Singapore banks expanding with credit care
(6 July 2005 - Singapore) International rating agency, Fitch Ratings, says that Singapore banks' various expansions into the region will result in modest deterioration only in their credit and operational risk profiles.
This outlook could worsen were local Singaporean banks to decide to operate with lower capital ratios going forward but given their expected strong financial condition and the prudence with which they intend to execute their expansion strategies, Fitch says its Outlook on local bank ratings remains Stable.
Fitch sees the Singapore banks as being some of the strongest in the region, with their collective asset quality gradually improving as their NPL ratio has declined to 4.4 percent as at March 2005 relative to 6.6 percent as at the end of 2003.
'Expanding into the region seems to be a growth imperative and something that banks are pursuing in order to graduate into pan-Asian regional banks, as has been their stated intention for some time,' notes Ambreesh Srivastava, Fitch’s Director of Banks & Financial Institutions - Asia.
'Local banks are being driven to expand regionally for growth opportunities and to meet their target ROEs, given the limitations of the Singapore market, which is relatively small and extremely competitive.' While expansion into well-regulated markets such as Hong Kong - where DBS bought Dao Heng Bank in 2001 - was not a major concern despite the high premium paid, expansion into other regional countries such as Indonesia, Thailand, China and India brings in additional risks to Singapore banks' credit profiles as regulatory, market and legal infrastructures in these countries are not as strong as that in Singapore. UOB's acquisition of Thailand's Bank of Asia in 2004, OCBC's acquisition of PT Bank NISP in Indonesia in April 2005 and DBS buying a 37.5 percent stake in an Indian finance company in June 2005 are noteworthy in this regard,' according to Mr. Srivastava.
Fitch sees the Singapore banks as being some of the strongest in the region, with their collective asset quality gradually improving as their NPL ratio has declined to 4.4 percent as at March 2005 relative to 6.6 percent as at the end of 2003.
'Expanding into the region seems to be a growth imperative and something that banks are pursuing in order to graduate into pan-Asian regional banks, as has been their stated intention for some time,' notes Ambreesh Srivastava, Fitch’s Director of Banks & Financial Institutions - Asia.
'Local banks are being driven to expand regionally for growth opportunities and to meet their target ROEs, given the limitations of the Singapore market, which is relatively small and extremely competitive.' While expansion into well-regulated markets such as Hong Kong - where DBS bought Dao Heng Bank in 2001 - was not a major concern despite the high premium paid, expansion into other regional countries such as Indonesia, Thailand, China and India brings in additional risks to Singapore banks' credit profiles as regulatory, market and legal infrastructures in these countries are not as strong as that in Singapore. UOB's acquisition of Thailand's Bank of Asia in 2004, OCBC's acquisition of PT Bank NISP in Indonesia in April 2005 and DBS buying a 37.5 percent stake in an Indian finance company in June 2005 are noteworthy in this regard,' according to Mr. Srivastava.
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