Singapore Banks

Maybank-KE reiterated its negative outlook on the banking sector, citing asset quality concerns, which arise from the commodities and O&G sector, remain an overhang to the sector.

Collapsed commodity prices, possible bankruptcy filings by Sete Brasil and wider credit spreads are bringing credit concerns to the fore. Noble Group’s credit rating cut by Moody’s and S&P to below investment grade is an example.

Bond yields of Singapore-listed O&G corporates and commodity traders rose more than 2% MoM. As banks carry corporate papers in their trading book, the lenders will be hit as these assets are marked to market.

Besides, against a slump in cash flows, some affected corporates have proactively sought out the banks to renegotiate the terms of their loan agreements.

The house expects asset quality deterioration for Singapore banks will linger, especially on their exposure to O&G and commodities.

As at 3Q15, DBS and OCBC were most exposed to O&G and commodities ex O&G, respectively.