Here’s a silver lining for Singapore’s three biggest banks

All's not lost despite slowing loan growth.

Banks will face a double whammy of slowing loan growth and moderating earnings growth in coming quarters, but analysts believe that their solid balance sheets provide a sense of comfort in these trying times.

For instance, OCBC noted that although slowing regional economies pose challenges for local banks, the three lenders are nonetheless cushioned by their healthy financials.

“After several years of strong loans growth and consecutively higher earnings, the local banks are entering into 2016 on a more muted note. [However], a key positive is the strong balance sheets of the local banks as well as the still low level of NPLs,” OCBC said in a recent report.

Meanwhile, RHB Research noted that despite slowing loan demand, Singapore banks enjoy stable net interest margins, supported by a measured rise in Singapore’s short-term rates, along with the slow and gradual normalisation of US rates from December.

Singapore banks also boast the best asset quality among ASEAN banks, RHB said.

“Exposure to the commodities sector, China and domestic mortgages would remain areas of concern in 2016. However, with proactive actions to assist distressed borrowers, we do not expect massive blowups in NPLs. SG Banks are confident provisions would not be significantly higher and we have factored in credit cost of 22bps for 2016 (2015: 23bps), with loan loss coverage stable at 145%,” RHB said.

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