Here's proof that Singapore banks' asset quality may soon quiver

Start fearing it now.

According to Maybank Kim Eng, Singapore banks have enjoyed a benign credit environment for a long time thanks to persistently low interest rates.

However, with short-term interest rates expected to rise after recent years of rapid loan growth, there are concerns that Singapore banks’ asset quality may start to crack.

Here's more from Maybank Kim Eng:

The low specific charge-off rate for our universe, which is measured as specific allowances as a percentage of average net loans, has helped cushion the earnings drag arising from continually depressed industry net interest margin (NIM).

With the best of credit charge-off rate likely behind us, there are fears that an uptick could be a drag on banks’ profitability.

Based on our estimates, every 5bps increase in credit cost will hurt banks’ earnings by up to 3.1%, with a slight variation from bank to bank.

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