How high can credit costs go for Singapore banks?

A 10 bps increase in credit costs lowers profit by 7%-8%.

Following Jefferies Research's sector downgrade, investors queried how high credit costs can go based on past NPL cycles and a realistic estimate of earnings impact. 

Here's more:

During GFC, credit costs rose on average 50 bps from trough to peak on an annual basis. Operating profits fell by 14%-17% from peak to trough. Everything else staying same, 10 bps increase in credit costs lowers profit by 7%-8%.

Banks were able to mitigate the impact of credit costs by reining in expenses and growing trading income (as interest rates came in) during GFC.

In this cycle, we will expect the levers to be release of GP and control around expenses. We are not sure how much will be the margin tailwind when loan growth is sluggish and larger economies such as China and India are cutting policy rates.