Speakers:

Singapore Banking Vishrut Rana, Economist, Asia-Pacific

Ivan Tan, Director, Financial Institutions Ratings
Nancy Duan, Associate Director, Financial

Outlook 2021
Institutions Ratings

Moderator:
Geeta Chugh, Senior Director & Sector Lead,
Live Webinar and Q&A – March 10, 2021 Financial Institutions Ratings
 Vishrut Rana

Singapore | Macroeconomic Outlook Economist, Asia-Pacific

We Expect Robust Global Growth in 2021 On Base Effects

GDP Growth (% year over year) – Robust 2021 growth. This includes
base effects from weak activity in
2019 2020 2021 (f) 2022 (f) 2020.
Singapore 1.3 -5.4 6.0 3.0
– Upside risks to growth this year in the
EM-Asia Ex IN, 4.5 -4.4 6.2 5.3 U.S. due to fiscal stimulus. This will be
CN positive for trade and external
demand in Asia-Pacific.
China 6.0 2.3 7.0 5.0

Malaysia 4.3 -5.6 7.5 5.2 – There is high risk of delayed recovery
in EM-Asia excluding India and China.
Indonesia 5.0 -2.1 5.4 5.2 Our scenario analysis suggests a 2-
month delay would lower growth from
Asia Pacific 4.5 -1.5 6.8 4.7 baseline by 1 ppt.
U.S.A. 2.2 -3.5 4.2 3.0
– Singapore likely to see strong growth
Eurozone 1.3 -6.8 4.8 3.9 as activity normalizes.

Source: S&P Global Economics. Forecasts as of 29 Nov 2020.

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Manufacturing and Trade Resilient, While Services Remain Weak
– Until there is more normalization of travel and local social distancing, travel-related and consumer-facing sectors will
struggle.
– There is sequential slowdown in manufacturing activity, but the sector has been broadly resilient; electronics has
outperformed.

Manufacturing contributing positively to GDP growth Global electronics cycle recovery supporting production

Contribution to GDP growth Industrial production and key components

3% 70
60
0%

% year over year, 3mma

50
-3% 40
30
-6%
20
-9% 10
0
-12%
-10
-15% -20
Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 -30
Manufacturing Construction Services Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21

Others GDP growth (% y/y) Industrial production IP: Electronics cluster IP: Biomed cluster

Source: Ministry of Trade and Industry and S&P Global Economics Note: 3mma: 3-month moving average. Source: Department of Statistics and S&P Global Economics

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MAS Likely To Keep Policy Accommodative

NEER Has Been Flat In Line With MAS Policy; Core Inflation Is Low

Singapore Inflation and NEER – Weak domestic demand has driven

2.5% 129 core inflation slightly below zero. This
should pick up gradually as the
2.0% 128
economy recovers and activity
1.5% normalizes. However, it is likely to
127
year over year

1.0% remain subdued.

Index
126
0.5% – Higher global oil prices will also put
125 some upward pressure on inflation.
0.0%
– Labor markets are gradually
-0.5% 124
stabilizing.
-1.0% 123

– The MAS will keep policy settings

accommodative and keep the NEER
CPI Inflation MAS Core Inflation SGD NEER (Right Axis) slope at 0% as inflation is low and the
output gap is negative.
Sources: Monetary Authority of Singapore and S&P Global Economics

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Rising U.S. Yields Will Affect Singapore Yields

The Taper Tantrum in 2013 Saw FX and Yield Pressure In The Region

FX and bond yield change between 21 May 2013 and 30 Sep2013 – One previous episode of rising U.S.
20 interest rates was in 2013 during the
Indonesia taper tantrum.
15
India
– Expectations of tighter U.S. monetary
FX change, %

10 Malaysia policy drove yields higher and led to

capital outflow pressures in regional
Philippines
5 emerging markets.
Thailand

0 – In Singapore, the exchange rate wasn’t

Singapore
sensitive to regional FX moves, but
-5 interest rates moved higher reflecting
0.0 0.5 1.0 1.5 2.0 2.5 3.0 rising global interest rates.
10Y government bond yield change, percentage points

Sources: Bloomberg and S&P Global Economics

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Rising U.S. Yields Will Affect Singapore Yields
– Singapore’s yield curve is steepening as U.S. yields rise. Credit impulse is recovering as economic activity starts normalizing.
– This time is different. Unlike the taper tantrum, this time higher growth and inflation expectations are driving U.S. yields
higher.

Credit Impulse Picked Up In Early 2021 Yield Curve Has Been Steepening

Private Credit Impulse (Net New Credit) Singapore Goverment Securities Yield Curve
25 1.8
20 1.6
15 1.4
% of GDP

1.2
10
1.0
5
0.8
0
0.6
-5
0.4
-10 0.2
0.0
1Y 2Y 5Y 10Y 15Y
Credit Impulse 3mma Credit Impulse 15mma Feb-21 Nov-20
Note: 3mma: 3-month moving average. 15mma – 15-month moving average Private credit impulse
measured as net new credit to the private sector measured as percentage of GDP. Source: Monetary Authority of Singapore
Sources: Monetary Authority of Singapore, Department of Statistics, and S&P Global Economics

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But Higher Global Growth Is A Clear Positive For Singapore

– Growth likely to be resilient in 2021 as activity normalizes. Manufacturing, trade, finance, and
information and communication services will continue to support growth. Harder hit sectors will take
longer to recover as vaccination efforts continue. Travel will remain constrained.

– Monetary policy set to be accommodative. Fiscal policy marks consolidation relative to the large
stimulus efforts in 2020.

– Rising U.S. interest rates will raise Singapore interest rates. The Singapore dollar will be affected by
broad-based U.S. dollar strength but not so much by regional emerging FX moves.

– In the current episode, factors driving U.S. rates higher include higher growth and inflation
expectations. The net impact of higher global growth is positive for the Singapore economy through
external demand.

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Singapore | Banking Sector Ivan Tan
Director, Financial Institutions Ratings

Nancy Duan

On the Path To Recovery Associate Director, Financial Institutions Ratings

2020 Profitability Was The Main Causality Of Pandemic And
Lockdown

Return of Average Assets

1.20%

1.10%
1.15%
Double whammy
1.00%
1% of very low
0.90%
interest rates and
0.80% elevated credit
0.70% 0.76% costs from COVID
0.60%
2019 2020 2021F
Return of Average Assets

Source: S&P Global Ratings Calculations, Banks financial statements

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Interest Margins To Stablize in 2021

1.85%
• Interest rates
1.80%
gradually trending
1.75% 1.80%
1.78%
upwards, but
1.70%
expected to
1.65% remain below
1.60% normal levels in
1.55% 1.55% 2021
1.57%
1.50% 1.53% 1.54%

1.45%
• Banks flushed
4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 2021 F with liquidity,
actively manage
Net Interest Margins
funding costs
Source: S&P Global Ratings Calculations , Banks financial statements

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Asset Quality On The Mend

GDP (% year over year) 2019 2020 2021F Comments

Real GDP % 0.7% (5.8)% 6.0% U-Shaped recovery

Reported NPL remained flat,

NPL Ratio*
1.5% 1.6% 2 to 2.5% loans under moratorium
(NPA/Gross Loans) %
trending down

Likely to be more problematic

Loans under moratorium % 0% Peaked at 10% 2-3% e.g. unemployed, businesses
that fail to rebound
Pre-emptive provisioning /
Credit Cost management overlay; coverage
23 bps 68 bps 40-50 bps
(basis points of loans) ratio boosted to from 90% to
110%
Source: S&P Global Ratings Estimates, Banks disclosures

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 Path to Recovery in SSEA – K-Shaped

3.5

2.5
Credit Costs (%)

1.5

0.5

0
Malaysia Singapore Philippines South Africa Vietnam Thailand China Indonesia India
2019 2020f 2021f 2022f

Source: S&P Global Ratings Calculations , Banks financial statements, 2020 Actual credit cost for Singapore and Philippines

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Analytical Contacts

Ivan Tan Vishrut Rana

Director, APAC Financial Institutions Economist, Asia-Pacific
+65 6239 6335 +65 6216 1008
ivan.tan@spglobal.com vishrut.rana@spglobal.com

Nancy Duan Geeta Chugh

Associate Director, APAC Financial Senior Director, Financial Institutions
Institutions Ratings
+65 6216 1152 +91 22 33421910
nancy.duan@spglobal.com geeta.chugh@spglobal.com

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