Moody's downgraded the baseline credit assessments and adjusted baseline credit assessments of Singapore's DBS Bank Ltd., Oversea-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd. to "a1" from "aa3" due to the banks' weakening asset quality and profitability.
At the same time, the rating agency changed its outlook on the banks to stable from negative, believing that further solvency pressure will be manageable for them.
The rating agency also downgraded by one notch the subordinated debt and capital instrument ratings of DBS Group Holdings Ltd., DBS Bank, OCBC and United Overseas Bank driven by a similar action on the adjusted baseline credit assessments of the banks.
Moody's expects further negative pressure on asset quality in 2017 to create downward pressure on the banks' profitability due to higher credit provisions.
In addition, Moody's affirmed long-term deposits and senior debt ratings of DBS Bank, OCBC and United Overseas Bank at Aa1. The long-term local- and foreign-currency issuer ratings and senior unsecured rating of DBS Group were affirmed at Aa2.
The rating agency said the affected banks' deposit and senior debt ratings could be downgraded if new nonperforming loan formation remains elevated or if capital buffers decline continuously over several quarters, among other things.
Moody's further noted that upward pressure on the ratings is unlikely as the banks' ratings are among the highest assigned to any financial institution globally. However, improvements in the macroeconomic conditions in Singapore or in the region as well as in the banks' financial metrics would be credit positive for the banks' baseline credit assessment.