Singapore's banking sector outlook revised downward

It’s the first downgrade since 2010.

Moody's Investor Service has given Singapore's banking sector a rare caution and revised downward the city’s outlook due to rapid loan growth and rising property prices in Southeast Asia.

Moody's on July 15 lowered its outlook for Singapore's banking sector to "negative” from "stable," where the outlook has stood since 2010.

The banks covered include Singapore’s three largest: DBS, United Overseas Bank and Oversea-Chinese Banking Corporation, and Bank of Singapore, OCBC's private banking arm. These banks together account for about 60% of bank deposits in Singapore.

The banks' individual ratings were unchanged, however. All four are rated Aa1, making them among the highest-rated banks in the world.

Moody's said rapid loan growth and rising property prices had increased the probability of deterioration in the banks' credit profiles under potential adverse conditions in the future.

Moody's said its outlook is a directional, forward-looking view of the trend in the banks' relative credit quality, which we consider as having potentially reached, or to be close to reaching,a cyclical peak.

Singapore banks have increased their exposure in Southeast Asia over the past decade, almost doubling their net profits in the period from the region to about 40% of overall profits. Moody's said this exposed them to the risks of operating in high-growth emerging markets.

In 2012, 77% of Singapore banks' non-performing loans were related to loans made by borrowers outside Singapore, compared with 65% in 2008, Moody's said.