Construction firms' on-time payments boost Singapore banks

NPL ratios tied to the construction sector were 0.2%-0.8% at year-end 2017.

According to Moody’s Investors Service, Singaporean companies’ improved payment performance for Q1 is positive for banks, because it reflects “a broad improvement in corporate cash flow and debt serviceability that will support banks’ asset quality this year.”

For DBS, OCBC, and UOB, nonperforming loan (NPL) ratios tied particularly to the construction sector were 0.2%-0.8% at year-end 2017, much lower than overall NPL ratios of 1.5%-1.8% as of the same date.

Moody’s Investors Service vice president and senior analyst Simon Chen noted that compared with a year ago, payment indicators generally improved during 2017 and Q1 2018, reflected by a decline in companies with slow payments, particularly in the construction sector, which has the poorest record of prompt payments amongst all industry sectors.

“The first-quarter 2018 improvement followed deterioration in the second half of 2017, and occurred amongst special trade contractors and building and heavy construction companies,” he added.

The manufacturing, retail, services and wholesale sectors collectively account for around 23% of total loans and continued to show a lower percentage of companies with slow payments. “This trend will support these sectors’ stable asset quality performance,” it added.

Chen noted that operating conditions for Singapore’s construction sector have been challenging over the past two years amid subdued economic activity, a slowdown in project development, and rising operational costs. “We expect the construction sector’s gradual improvement this year because of Singapore’s recovering economy and the government’s plan to accelerate public infrastructure development, which will support banks’ stable asset quality in this sector,” he concluded.