The level of non-performing loans (NPLs) is expected to rise as asset quality declines amid an environment of weakening economic conditions, the bank said in a report.

It said Singapore banks are going to be worse hit compared to the 1997-1998 crisis when their regional rivals bore the brunt of the financial meltdown.

"A crucial difference in the current economic crisis in Singapore is that the deterioration in banks' asset quality is coming mainly from Singapore as opposed to the rest of Asia," ING Barings said.

"Furthermore, the contraction is more severe with little clarity as to the timing and extent of when the economy is likely to rebound."

ING Barings said NPL levels could rise to more than 11 percent in the second-half of 2002, and the prospect of an even higher level of NPLs in 2003 was strong if the economy remained sluggish.

The bank is forecasting the Singapore economy to shrink 3.2 percent this year, worse than the 3.0-percent contraction projected by the island's government.

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