DBS Group Holdings and two other Singapore banks had the outlooks on their financial strength ratings cut by Moody’s Investors Service, citing the global recession’s impact on earnings and asset quality, reported Bloomberg.

The outlooks on the Aa1 long-term deposit and debt ratings of DBS and rivals Oversea-Chinese Banking Corp. and United Overseas Bank were reduced to “negative” from “stable,” the risk assessment company said in a statement today.

“The negative outlooks of DBS, OCBC and UOB reflect the fact that the deepening global economic downturn could have a protracted impact on their asset quality and earnings,” Christine Kuo, a Moody’s senior analyst, said in the statement.

Singapore’s economy is in its worst recession on record as the global slowdown saps demand for exports. The city’s economy may shrink as much as 9 percent this year, the most since independence in 1965, the trade ministry predicted on April 14.

DBS said Feb 13 that fourth-quarter profit fell 40%. United Overseas and Oversea-Chinese also reported declining earnings during the three months ended Dec 31 as the slowing economy eroded fee income and pushed bad loans higher.

The three banks are likely to continue reporting increasing non-performing loans “in line with the weakening economic conditions,” Moody’s said.

The outlook changes don’t affect the banks’ short-term ratings of Prime-1 as they have strong franchises, healthy credit profiles and well-capitalised balance sheets, Moody’s said.

“Even in a severe downside scenario, we would expect the banks’ Bank Financial Strength Ratings to remain above average and their debt and deposit ratings to be solidly positioned within the Aa-rating band,” Kuo said.