Banks building tougher buffers to ward off bad debts

The credit outlook is dimming.

Singapore’s three biggest banks are building tougher buffers on back of a feared deterioration in asset quality.

According to Maybank Kim Eng, banks are particularly cautious on loans to the oil and commodity sectors. DBS has the largest exposure of $50b to the oil and commodity sectors, above OCBC’s $25b and UOB’s $17b.

“In our view, it is still early days for credit quality to deteriorate, as stresses in the oil & commodity sectors will take time to emerge. Even then, we believe risks will be well-contained. Singapore banks have already set aside more buffers for bad times. UOB’s outsized general-provision ratio was raised preemptively in the past two years (Figure 5) to counter potential slippages,” stated Maybank Kim Eng.