Singapore banks' credit quality deterioration not over yet

Credit costs could range 39-44bps from 2016-2018.

Amid sluggish growth and a rising interest rate environment, MayBank KimEng believes default risks for Singapore banks could be higher.

"Our FY17E and FY18E provision estimate for the three banks is 14-25% and 8-20% higher than consensus," it said.

The research house estimates credit costs to be 39-44bps on average for Singapore banks from FY16-18E.

"Our estimates could be at risk should there be more recoveries or if credit costs are more benign than what we expected, as banks can have varying standards in their loan-loss methodologies," it said.

MayBank KimEng also notes that if it reduces its FY17E credit cost estimate by 10bps, it estimate banks’ FY17E net profits to increase by c.6-7%, ceteris paribus.