Singapore banking system sound despite economic volatility—Moody’s

The Aaa-rated government is capable of supporting its lenders to become drivers for economic growth.

Moody's Investors Service says in a new report that the Singapore banking system is essential to the economy and high systemic support is expected in time of financial turbulence.

The report, "Banking System Profile for Singapore," also notes that Singaporean banks enjoy a stronger operating and regulatory environment than banks in most of its neighboring countries despite the volatility in the city-state's economic growth.

"Singapore's economic growth is more volatile than many developed economies, but the operating environment for the Singaporean banks is robust, as good economic growth (in most years), a well established and efficient legal system, and sound controls of corruption are conducive to bank operations," says Christine Kuo, a Moody's VP/Senior Analyst and author of the report.

"The Singaporean banks also benefit from a sound regulatory and supervisory environment -- its regulatory standards are prudent, and supervision of the banking system and enforcement of banking regulation has been effective," adds Kuo.

Though the Singaporean banking sector is not huge on an absolute scale, it plays a very significant role given the size of the Singaporean economy. Banking system assets represented 761 percent, and domestic credit, 224 percent of Singapore's GDP in 2008.

The three domestic banking groups are particularly important to the local payment system, owing to their high deposit market shares. The three banks combined control about 60 percent of SGD deposits, backed by extensive branch networks and long-term commitment to local communities.

Moody's assesses Singapore as a high-support country, based on the importance of the banking system to the economy and the absence of any history of bank deposit defaults. Additionally, in Moody's view, the Aaa-rated government is more than capable of supporting the banking system should it need to.

Moody's Banking System Profile for Singapore is a first for that country and forms part of a new series of reports on banking systems throughout the world. These profiles are designed to complement the rating agency's Banking System Outlook reports, by serving as descriptive reference guides to key structural factors reflected in Moody's bank credit ratings.