Nomura analyst Anand Pathmakanthan, in a report dated November 24, writes that Singapore banks are less at risk than their European or American counterparts. In fact, Pathmakanthan thinks there may even be some chance that they may see upgrades. “Given much stronger underlying macro and operational support, the impact is more likely to be neutral-to-positive, favourably impacting funding costs and valuations in the process,” he says.

 

S&P’s new ratings methodology is a two-step methodology. In the first step, banks will be assessed for their Stand-Alone Credit Profile, which assesses economic risks such as current account deficits and asset bubbles, industry risk such as system-wide funding and government supervision and regulation, and bank-specific factors comprising business position, capital and earnings, risk position, and funding and liquidity. In the second step, S&P will assess the likelihood of “extraordinary support” from the government and the corporate group. This will be factored into the Issuer Credit Ratings.

 

According to Pathmakanthan’s report, the ratings initiative will impact the credit ratings of approximately 1,000 banks across 86 banking systems around the world. New ratings will be rolled out across the next few weeks to be completed by the middle of December. S&P expects approximately 90% of all ratings to remain within one notch of current ratings. Around 60% will remain unchanged, 20% will be upgraded by one notch, 15% downgraded by one notch and less than 5% of the banks will see their ratings downgraded by two or more notches.

 

“We have consistently noted that Asean banks are a relative oasis of stability, ticking all the right boxes when one assesses key operating fundamentals such as profitability, capital, asset quality, balance sheet transparency and liquidity,” says Pathmakanthan. He points out that the 3Q earnings of the Asean banks were at or near records. Their core equity ratios average above 10% while non-performing loans average less than 4%. Loan-to-deposit ratios average at less than 90%. In fact, unlike their Western peers, the Asean banks have a problem of too much in deposits rather than too little.