BRUNEI's banking industry will remain stable amid economic risks posed by falling global oil prices, according to global rating firm Standard and Poor's (S&P).
S&P Bank Credit Analyst Amit Pandey said that while falling oil prices have slowed the Sultanate's economy, the banking sector's credit losses will remain within the credit rating firms's "base case expectations".
Pandey told The Brunei Times that most of the local banks' retail clients are either employed in the government or in the oil and gas sector "which the government controls in partnership with leading multi-national companies".
"We don't foresee large scale job losses in the country due to fiscal buffers of the government and the importance of the (oil and gas) industry to the economy," he said.
The oil and gas sector accounts for more than half of the Sultanate's economy and over 90 per cent of its exports.
He added most corporate banking clients are contractors, suppliers or subcontractors who are working with the government and/or the hydrocarbon sector.
"In our (S&P) view, a protracted weakness in oil price may enhance the challenges for the banking system. However, that is not our base case view on oil prices as of now," Pandey said.
Pandey made the statement following yesterday's S&P webcast about its credit outlook for banks in the Asia-Pacific.
In a recently published analysis of the country's banking industry called the 'Banking Industry Country Risk Assessment' (BICRA), Brunei was classified as six out of a possible 10, with 10 being the highest-risk.
The Sultanate is grouped with Bahrain, Guatemala, Thailand, Turkey and Uruguay.
S&P used its BICRA economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating.
The anchor for banks operating only in Brunei is BB+.
The report said Brunei's status as a major oil exporter supports the country's wealth, enabling it to build a strong external and fiscal balance sheet position.
"We see no major economic imbalances, such as a credit-fueled asset bubble. We believe that real demand spurs real estate prices," the rating agency said.
"Limited information on borrowers hampers underwriting. In our opinion, strengthening the country's credit bureau could help bridge the gap," it said.
But S&P noted that most banks have huge exposure to personal loans and construction and real estate loans, increasing its credit risk.
"In our opinion, Brunei's regulatory standards lag international standards, despite recent steps to tighten regulation and oversight," S&P said in its report.
Brunei's banking system has a moderate risk appetite, with the top four banks having more than 70 per cent market share.
The rating agency said limited loan and deposit rates has distorted the market. Banks benefit from a strong deposit base as reflected in their low loan-to-deposit ratios.
S&P expects credit growth to be moderate, given limited lending opportunities in Brunei.
"We also view the trend for industry risk in Brunei's banking sector as stable. We expect local banks to fill the space vacated in some businesses by some foreign banks in Brunei. The banks are likely to maintain their substantial deposits from a wealthy government and its related entities, and the retail sector," the credit rating agency said.
S&P said the government is "highly supportive" of the country's banking system. It expects the government to intervene and rescue commercial banks in distress.
"Our assessment is based on the government's record of supporting commercial banks through deposit guarantees and deposit insurance," the report said.