DBS shares closed down 1.27 per cent at $32.55 on Thursday. OCBC slid 0.98 per cent to $12.15, and UOB dipped 0.71 per cent to $28. Singapore’s three big banks were caught in a global sell-off set off by trouble at Credit Suisse and a string of U.S. bank failures.
Asian markets pared their losses by the close but still finished lower. The benchmark Straits Times Index was down 0.55 per cent, or 17.38 points.
What hit Credit Suisse
Credit Suisse sank as much as 30 per cent on Wednesday after its largest shareholder, Saudi National Bank, ruled out investing any more in the bank on regulatory grounds. The cost of insuring the bank’s bonds against default for one year jumped to a level not seen for big international banks since the 2008 financial crisis.
Shares bounced back on Thursday, rising as much as 40 per cent in early Zurich trading, after the Swiss National Bank (SNB) provided a lifeline of 50 billion Swiss francs (S$73 billion). Finma and the SNB had said on Wednesday that Credit Suisse still met the higher capital and liquidity rules for Swiss systemically important banks. It is one of 30 global institutions the Financial Stability Board treats as systemically important, which means its failure could set off a wider financial crisis.
The three Singapore banks told The Straits Times that their exposure to Credit Suisse is insignificant. Credit Suisse declined to comment on the size of its Singapore operations.
Singapore’s regulator steps in
The Monetary Authority of Singapore (MAS) said on Thursday night that it has been in close contact with Finma. The Swiss bank’s Singapore branch focuses on private and investment banking and has no retail customers, MAS noted. It called the local banking system sound and resilient. “Their liquidity positions are healthy, underpinned by a stable and diversified funding base,” the regulator said.
The U.S. backdrop
Markets had already been rattled over the past week by the collapse of Silicon Valley Bank and the closure of Signature Bank in New York state. U.S. regulators guaranteed that all depositors at both banks would be repaid in full, and made up to US$25 billion (S$33.8 billion) available for a new lending programme offering one-year loans to banks on easier terms. Crypto-focused Silvergate Bank said it would wind down and voluntarily liquidate.
Kelvin Tay, UBS chief investment officer for Asia-Pacific, said markets were struggling with three linked problems: bank solvency, liquidity and profitability. Solvency fears, he said, were “clearly overdone.” Some individual banks might still need central bank liquidity support if funding stays tight for long, which explains the panic when Credit Suisse’s biggest stakeholder ruled out more help.
Why analysts see Singapore as insulated
Glenn Thum of Phillip Securities Research pointed to customers. Credit Suisse serves mainly wealthy clients and businesses, while Singapore’s banks serve everyday savers and small and medium-sized companies. “The overall risk and exposure to Singapore banks is limited,” he said, though he added that loan growth could slow, which might weigh on the banks’ growth.
Thilan Wickramasinghe, head of regional financials at Maybank, said Singapore banks run conservative balance sheets with high capital. They have been cautious since the Asian financial crisis and the global financial crisis, he said, with diversified deposits, mostly loans on the asset side, and bond holdings largely at the short end.
Aaron Chwee, OCBC’s head of wealth advisory, said the SNB backstop offers short-term relief. “This uncertainty will likely result in elevated volatility within the US and European financial sectors over the next few days, and maybe weeks,” he said. Separately, First Republic Bank of San Francisco was reportedly exploring strategic options, including a sale, after Fitch Ratings and S&P Global Ratings downgraded it on Wednesday.
