But such financial strength may not help boost profitability for the three listed banks in 2012.
Singapore banks are under pressure to keep up its profitability.
The three local banks, UOB, OCBC and DBS have been hit by a double whammy of declining loans growth and low interest rates and these have caused a dent in their earnings this year.
UOB reported a 24 percent year-on-year drop in Q3 profit to $522 million while OCBC posted a drop of 10 percent to $513 million.
Latest data showed that year-on-year growth in Singapore dollar loans has slowed down to 29.8 percent in October - its slowest in two years.
The loans business is expected to decline further in the first quarter of next year.
This will be on the back of lower mortgage loans following the latest property cooling measures.
Coupled with the low interest rates, analysts are already predicting net profit of Singapore banks to shrink by up to 10 percent in 2012.
Trevor Kalcic, Head, SEA Equity Research, RBS, said: "The banks are growing their assets very, very fast. But unfortunately they are not making a lot of money on those assets. So basically you are seeing a huge amount of growth in balance sheet, but earnings are not really growing very very strongly. The main catalyst to improve profitability, from here going forward, would really have to come from the interest rate front. So we would have to see higher interest rates in the Singapore and regionally than what we have at the moment."
But it is not all about profits to determine if the local banks still offer good investment prospects.
Some analysts say the local bank's financial stability amid a difficult operating environment is an important factor as well.
Alfred Chang, Director, Financial Institution, Fitch Ratings, said: "When you are in a difficult environment, I think earnings become less important. Ability to preserve the banks' profile becomes more important. What I meant by that is preserving asset quality, preventing a sharp rise in non-performing loans. And as I've mentioned - banks have a good record in mitigating risk arising from some of the portfolios."
International credit rating agencies - Moody's, Standards & Poor's and Fitch - rate UOB, OCBC and DBS as 'stable' in outlook.
Singapore's sovereign rating is also triple A.
Such rare ratings in an uncertain economic outlook differentiates Singapore banks from those in the US and Europe.
Analysts say this can help boosting their private banking business, and new income generators are also emerging.
Kenneth Lui, Analyst, SIAS Research, said: "There is growth coming from wealth management and private banking. But it's really at the infant stage."
Market observers also see mergers and acquisition as potential income drivers for the Singapore banks.
Analysts say some family-owned banks in Thailand, Taiwan and Indonesia may offer good M&A opportunities.
Annie Koh, Associate Professor of Finance, SMU, said: "Indonesia might be a good collaboration market for some of our local banks. The only thing is the regulatory constraints. Indonesian regulators would probably do not want to see too big a majority share. You would see some of the constraints are actually country protection more so than because the banks are not willing to sell. The bank owners are probably quite willing. It is probably the governmental and regulatory climate that prevents that. So you won't see big stake but you definitely see some sizeable equity stake from some of our local banks."
Growth through such inorganic means could help the three listed Singapore banks to expand faster in the region rather than relying on expanding organically.
- CNA/ch
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