The downgrades " reflect asset-quality problems arising from the East Asian financial crisis," Moody' s said on Friday. Singapore' s economy continues to be vulnerable to external shocks, particularly from neighboring Indonesia and Malaysia, the agency said.
Nevertheless, Singapore' s banks remain the healthiest in Asia, Moody' s said, due to prudent supervision, high capital levels and consistent earnings.
The agency confirmed the C financial-strength ratings of Keppel Bank of Singapore Ltd. and Tat Lee Bank Ltd., but downgraded the banks' long-term foreign-currency deposit ratings to A2 from A1. Moody' s also confirmed the Prime-1 short-term deposit ratings of Keppel and Tat Lee Bank, which plan to merge on Dec. 26.
Tat Lee Bank is currently a wholly owned subsidiary of Keppel Bank. The fully merged entity will be Singapore' s smallest domestic bank.
The ratings outlooks for all six banks are now stable, Moody' s said.
The DBS downgrade to C-plus from B-plus reflects the increased risks that the company faces, Moody' s said. " DBS is now moving more aggressively to expand its regional banking presence," the agency said.
Last week, DBS agreed to acquire 44% of Kwong On Bank of Hong Kong from Fuji Bank Ltd. of Japan. The planned acquisition will improve DBS' s average asset quality and earnings, but the deal will reduce the bank' s capital ratios in the absence of a new capital issue, Moody' s said.
Moody' s confirmed DBS' s long-term foreign-currency deposit rating of Aa2. The bank' s short-term deposit rating remains Prime-1.
The financial-strength rating of Oversea-Chinese Banking fell to B from B-plus, while the company' s long-term foreign-currency desposit rating dropped to Aa3 from Aa2. Larger regional exposure poses " increased risks to OCBC' s historically strong asset quality," Moody' s said.
OCBC' s short-term foreign-currency deposit rating remains Prime-1.
Moody' s said it downgraded United Overseas Bank to B from B-plus to reflect " the general increase in credit risk in both Singapore and the region."
United Overseas Bank' s long-term deposit ratings were confirmed at Aa2. The short-term deposit rating remains Prime-1.
The strength rating of Overseas Union Bank fell to C from C-plus to reflect the bank' s relatively lower capital levels and its weaker earnings, Moody' s said. Those factors make Overseas Union Bank more vulnerable to the risky operating environment over the medium term, the rating agency said.
Moody' s confirmed the long-term and short-term foreign-currency deposit ratings of Overseas Union Bank at A-1 and Prime-1, respectively.