Asean banks have a “long road to recovery”, say Maybank analysts, including Thilan Wickramasinghe and Kareen Chan, downgrading the sector to “negative” in a September 11 note. Analysts warn of Singapore experiencing “one of the strongest contractions in the region” due to its open and trade-driven economy, with DBS the preferred pick among banks in Singapore.

That said, Maybank also notes that the economic contraction here may not extend directly to the banking sector, and regional diversification into an increasingly open North Asia, coupled with strong liquidity in USD and strong capital reserves remain strengths of Singapore banks. 

Analysts point towards “massive government stimulus” here, which may cap non-performing loan (NPL) growth in the near-term, though they also warn of “significant risks” after such schemes expire. Sector NPLs are set to nearly double and credit charges nearly triple by FY21, compared to FY19.

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