SINGAPORE - A Swiss billionaire investor has warned that major Singapore banks are at risk of being caught in the headwinds of China's economic downturn.
According to the Singapore Business Review (SBR), Mr Felix Zulauf, president and owner of Switzerland-based hedge fund Zulauf Asset Management, said that Singapore's biggest banks, DBS, OCBC and UOB, would be vulnerable to massive capital outflows if the Chinese economy experiences a hard landing, which he expects to happen this year.
"China in today's cycle is what US housing was during the financial crisis in 2008," he said, adding that continued capital outflows would prompt regulators to devalue the yuan by 15 to 20 per cent.
He predicted that the situation would deteriorate into a banking crisis across the region that would hit Singapore and Hong Kong particularly hard.
Mr Zulauf explained that Singapore will be extremely exposed because it has attracted a high volume of foreign capital over the years.
"Singapore's banking-sector loans have grown dramatically in the past five or six years. Singapore is now losing capital, which means the banking industry is losing deposits," he said.
Recently, a number banks in Singapore, including Barclays and Standard Chartered, have annouced job cuts as part of cost-cutting measures, with Barclays Singapore laying off 100 staff in January.
Singapore banks also closed 2015 with their share prices down 15-20 per cent from the start of the year, The Business Times reported.
In his recent Chinese New Year message, Prime Minister Lee Hsien Loong said that the Government is closely monitoring the uncertain economic situation, although he did not expect a severe downturn of 2008 proportions.
A number of analysts also disagreed with Mr Zulauf's view, saying that Singapore's biggest banks would be able to withstand severe shocks.
Mr Jonathan Koh, an equity analyst at UOB Kay Hian, told SBR: "We couldn't reconcile Mr Zulauf's observations with official industry statistic released by the Monetary Authority of Singapore (MAS). Contrary to Mr Zulauf's views, our three local banks are well capitalised."
In its most recent Financial Stability Review, MAS pointed out that Singapore's banking system remains resilient amid an uncertain external environment.
"Banks have strong capital and liqudity buffers to withstand severe shocks, but continued vigilance is warranted," the central bank added.