Moody’s Investors Service said in a statement on July 8 that its outlook on Singapore's banking system in the next 12-18 months is negative as it has been since July 2013, due to the country’s rising interest rates and potentially more bad loans.

“Because the banks have rapidly grown both their domestic and cross-border loans in recent years, we expect a moderate increase in problem loans, as interest rates rise, due to the US Fed's expected raising of policy rates, and as asset prices are likely to fall,” said Eugene Tarzimanov, Moody's Vice President, on the release of Moody's “Banking System Outlook Singapore”.

“As a result, the banks will face a modest increase in their credit costs over the next 12-18 months,” he added.

The report looks at Singapore's banking system based on five factors, including operating environment, asset quality and capital, funding and liquidity, profitability and efficiency, and systemic support.

Tarzimanov said that nevertheless, the banks' problem loans during 2014-15 will increase only moderately, given the very low one percent reported at the end of 2013.

The mild deterioration will likely originate from the banks' foreign loan books, which made up 47 percent of their gross loans at end-2013.

Moody's rates DBS Bank, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB), Singapore's three major banking groups which together accounted for around 60 percent of domestic system assets last year.-VNA