Here's what will support Singapore banks' profitability

Higher interest rates as a result of US monetary policy tightening is one.

The outlook of Moody's Investors Service for Singapore banks is stable, reflecting an improvement in growth conditions and stabilising commodity prices that will limit a further weakening in asset quality and profitability.

According to Moody's vice president and senior credit officer Eugene Tarzimanov, loan growth will increase mildly but be sustained by the system's strong capital, funding and liquidity buffers.

"Improving growth momentum in Singapore's key trade partners will support export-oriented manufacturers and offset some lingering weaknesses in the local economy," he said.

Moody's expects mildly higher interest rates in Singapore, as a result of US monetary policy tightening, to sustain banks' interest margins. This, together with subsiding credit costs, a mild rebound in loan growth, and higher fee income will support the system's profitability.

Here's more from Moody's:

Asset quality weaknesses have largely peaked, says Moody's, in particular among oil and gas exposures. Although problem loan ratios will still increase moderately, reflecting lingering distress in some local business segments, capitalization will be supported by mild loan growth, stable profitability and falling credit costs.

Funding and liquidity will remain key strengths for Singapore banks, with stable loan-to-deposit ratios well below 100% for the three large banking groups, a low reliance on wholesale funding and high proportion of liquid assets.

Moody's expects mildly higher interest rates in Singapore, as a result of US monetary policy tightening, to sustain banks' interest margins. This, together with subsiding credit costs, a mild rebound in loan growth, and higher fee income will support the system's profitability.

Government support for the three large Singapore banking groups will remain very high, reflecting not only their economic importance but also the government's strong support capacity.

While Singapore will soon introduce an enhanced resolution regime for banks, the proposed amendments will not subject banks' existing and prospective senior creditors and depositors to bail-in, which is in line with Moody's expectation of strong support in this system.