Fitch: Govt's Guarantees Reinforce Market Confidence In S'pore, M'sia

Source : The Business Times, October 17, 2008

Fitch Ratings on Friday said that it views the concurrent moves by the Singapore and Malaysian regulators to guarantee bank deposits to be positive for the respective banking systems.

The agency further notes that the Outlook on the credit ratings of Singapore and Malaysian banks continues to be Stable thanks to their relatively strong credit profiles and resilience amid the extreme global financial market turmoil and credit crisis.

Although Singapore banks' profit growth has moderated and their asset quality is expected to deteriorate slightly, their high credit ratings are on balance supported by the banks' solid loss absorption capacity, as a result of their robust capital position. The prudent supervisory environment under the Monetary Authority of Singapore (MAS) also contributes to the stability and sound financial health of the banking system. Indeed, MAS has been injecting liquidity to stabilise the local interbank market, which had tightened considerably towards end-September 2008. Importantly, Singapore banks' funding base remains well-diversified given the large proportion of retail deposits and their liquid asset ratio is still satisfactory.

Meanwhile, although still on an improving trend, Malaysian banks too may find it difficult to maintain earnings growth and asset quality improvement. Nevertheless, their capital levels are still satisfactory with a good buffer to absorb higher loan losses. Liquidity conditions in Malaysia have remained largely stable thanks to the local banks' stable funding and liquidity profiles.

The deposit guarantee mechanisms in the two countries are essentially aimed at maintaining market confidence, the loss of which could have been detrimental to the stability of the financial systems. Notwithstanding the relatively sound fundamentals of the two banking systems, the absence of such regulatory guarantee could have been disadvantageous for Singapore and Malaysian banks considering that a number of other banking systems have recently made various government guarantee arrangements. Looking ahead, Fitch notes that financial system stability in Singapore and Malaysia should be ensured at least until the expiry of the deposit guarantee (both of which will expire at end-2010), thus enabling banks to focus their resources more on negotiating the weaker economic environment. -- FITCH STATEMENT