The downgrades " reflect asset-quality problems arising from the East Asian financial crisis," Moody' s said on Friday. Singapore' s economy continues to be vulnerable to external shocks, particularly from neighboring Indonesia and Malaysia, the agency said.
Nevertheless, Singapore' s banks remain the healthiest in Asia, Moody' s said, due to prudent supervision, high capital levels and consistent earnings.
The agency confirmed the C financial-strength ratings of Keppel Bank of Singapore Ltd. and Tat Lee Bank Ltd., but downgraded the banks' long-term foreign-currency deposit ratings to A2 from A1. Moody' s also confirmed the Prime-1 short-term deposit ratings of Keppel and Tat Lee Bank, which plan to merge on Dec. 26.
Tat Lee Bank is currently a wholly owned subsidiary of Keppel Bank. The fully merged entity will be Singapore' s smallest domestic bank.
The ratings outlooks for all six banks are now stable, Moody' s said.
The DBS downgrade to C-plus from B-plus reflects the increased risks that the company faces, Moody' s said. " DBS is now moving more aggressively to expand its regional banking presence," the agency said.
Last week, DBS agreed to acquire 44% of Kwong On Bank of Hong Kong from Fuji Bank Ltd. of Japan. The planned acquisition will improve DBS' s average asset quality and earnings, but the deal will reduce the bank' s capital ratios in the absence of a new capital issue, Moody' s said.
Moody' s confirmed DBS' s long-term foreign-currency deposit rating of Aa2. The bank' s short-term deposit rating remains Prime-1.
The financial-strength rating of Oversea-Chinese Banking fell to B from B-plus, while the company' s long-term foreign-currency desposit rating dropped to Aa3 from Aa2. Larger regional exposure poses " increased risks to OCBC' s historically strong asset quality," Moody' s said.
OCBC' s short-term foreign-currency deposit rating remains Prime-1.
Moody' s said it downgraded United Overseas Bank to B from B-plus to reflect " the general increase in credit risk in both Singapore and the region."
United Overseas Bank' s long-term deposit ratings were confirmed at Aa2. The short-term deposit rating remains Prime-1.
The strength rating of Overseas Union Bank fell to C from C-plus to reflect the bank' s relatively lower capital levels and its weaker earnings, Moody' s said. Those factors make Overseas Union Bank more vulnerable to the risky operating environment over the medium term, the rating agency said.
Moody' s confirmed the long-term and short-term foreign-currency deposit ratings of Overseas Union Bank at A-1 and Prime-1, respectively.

 

 

 

 

The UOB offer is a 5.8% premium to OUB' s last traded price of S$9.45. Trading in UOB and OUB shares was suspended Friday at the companies' request. UOB last traded at S$11.50.
A combined UOB and OUB would become Singapore' s largest domestic lender, with total assets of S$112.9 billion and a market capitalization of S$21.48 billion, the two banks said.
UOB' s Chairman Wee Cho Yaw would become the merged entity' s new chairman and chief executive, the two banks said in a joint statement. All eight OUB board members have been invited to join the new UOB board, the two banks said.
OUB' s founder Lian Ying Chow is committing to sell his 15.7% stake in OUB to United Overseas, while OUB units Overseas Union Enterprise Ltd. and Overseas Union Insurance Ltd. have also agreed to sell their combined 10.7% stake in OUB to United Overseas, the banks said.
This is the latest twist in the Singapore banking-merger saga and is seen as an attempt by United Overseas and OUB, traditional rivals for more than three decades, to avoid being marginalized in the banking sector consolidation under way. The UOB-OUB combination is a defensive move to counter DBS' s dominance of Singapore' s banking scene, according to market watchers.
DBS said it is studying United Overseas' s offer, but declined to say whether it will top it.
" It' s slightly less cash than expected," said Sam Chin, banking analyst at ABN Amro Securities in Singapore. " Overall, the deal is pretty good, better than the DBS bid."
The combination would also overshadow the proposed merger between Oversea-Chinese Banking Corp. and Keppel Capital Holdings Ltd. , which together would have assets of S$68 billion. OCBC set the bank-merger ball rolling in Singapore with a S$4.8 billion bid for Keppel Capital.
The merger news came hours before Deputy Prime Minister Lee Hsien Loong' s announcement of a new set of banking-sector reforms designed to enhance competition in retail banking.