OREANDA-NEWS. Singapore banks will face a different set of challenges arising from regional expansion and rising competition after 50 years of robust growth, says Fitch Ratings in its latest Asia-Pacific Banks Chart of the Month report on Singapore.

Singapore's rapid economic development over the past 50 years since independence has been reflected in the concurrent growth of the banking system. The three local banking groups DBS Group Holdings (DBSH, AA-/Stable), Oversea-Chinese Banking Corp (OCBC, AA-/Stable) and United Overseas Bank Limited (UOB, AA-/Stable) - are now the three largest in ASEAN, anchoring Singapore's status as a regional financial centre.

Fitch views the Singapore banks' regional expansion strategies as a natural development, given the size limitations of the domestic market and the open nature of the Singapore economy. A regional footprint helps the banks to diversify their revenue streams and broaden their service offering, enabling them to better benefit from cross-border trade, greater ASEAN integration and rising incomes across the region.

However, greater regional exposure also comes with increased regulatory complexities and risks associated with emerging markets. Growing offshore operations - in foreign currency and in countries with more variable credit cycles - may challenge the banks' historical funding, asset quality and regulatory oversight strengths; although the agency believes local banks have managed such risks prudently thus far. 

Rising income in the region also creates broader fee revenue opportunities, such as in wealth management, bancassurance, payments and transactions and capital markets services. Pursuing growth opportunities in non-lending activities will require continued product and technological innovation, as banks are likely to face intense competition from foreign players and non-bank institutions.