Singapore banks' expansion plans into developing markets pose risks

Jul 23, 2007, 5:23 GMT

Singapore - The expansion of Singapore banks into Asia's developing markets is a growth imperative that poses new challenges and risks, Fitch Ratings said on Monday.

The regulatory, market and legal infrastructures in such countries as Thailand, India, China and Indonesia are not as sound as Singapore's, said the report, 'Singapore Banks' Regional Expansion - A Double-Edge Sword for their Credit Ratings.'

The banks' expansion plans are likely to increase their credit and operational risk profiles, which may be further compounded by their decisions to operate with lower capital ratios in the future, Fitch said.

All three banks were given 'stable outlooks' based on their strong financial conditions, still benign operating environments in most Asian markets, the prudence with which they intend to pursue expansion: and the healthy levels of expected capitalization.

While minimum regulatory capital ratio requirements have declined over the years, the banks have prudently maintained these ratios at sufficiently high levels in recognition of the risks associated with their regional expansion plans.

With the banks likely to continue expanding in a disciplined matter, Fitch said that their loss absorption capacity will not be materially impaired despite the decision to operate with slighter lower capital ratios in the future.