CPF cap coming very soon

[lifeline]

http://m.todayonline.com/singapore/c...monies-housing

[lifeline]

BY
MARCUS KOK
PUBLISHED: 4:03 AM, SEPTEMBER 24, 2014
At a recent seminar, Associate Professor Lum Sau Kim from the National University of Singapore (NUS) noted that the use of Central Provident Fund (CPF) monies for housing payment had constrained retirement adequacy.

“If so much of CPF funds are dedicated to housing, then we have poorly diversified household portfolios ... the nest egg that we have will be vulnerable to housing sector shocks and greater risks,” she said.

This raised an important question on whether the use of CPF savings for housing has been too liberal and whether it is time to impose limits to enhance Singaporeans’ retirement adequacy.

There are pros and cons to linking CPF to housing. The benefit is clear, for without the provision to use CPF to fund property loans, far fewer Singaporeans would be able to buy a home. Currently, home ownership rate stands at about 90 per cent, among the highest in the world.

However, on the flipside, linking CPF monies to housing makes Singaporeans’ retirement funds vulnerable to the cyclical patterns of the property market. For instance, when the property market contracts and valuations plunge, CPF members who are retiring and intending to unlock some or all of their housing assets to fund their retirement could be heavily hit.

Even if property prices surge, they may not be able to afford another home after selling the current one — unless they move in with family or friends. So while they might be sitting on an S$800,000 property, they may well have much less in the bank for their daily needs.

The Government is clearly keen to address Singaporeans’ concerns on retirement adequacy. The recent revision to the Lease Buyback Scheme — where Housing and Development Board (HDB) flat owners sell back part of the remaining lease to the Government — is a case in point.

But I believe the crux of the problem is the way Singaporeans use their CPF monies to buy property.

Many Singaporeans are currently pledging most, if not all, of their Ordinary Account contributions to housing, an illiquid asset. This might not be the most prudent approach to retirement planning. Even if there is a lack of viable investment vehicles in Singapore for retirement planning, a retirement portfolio needs to be well-diversified and not one that places most, if not all, eggs into one basket. There should also be a cash savings component in the portfolio that caters for a rainy day such as a medical emergency.

HOW A CAP WORKS

In a 2012 paper, NUS economic professors Chia Ngee Choon and Albert Tsui suggested that while it may be an uphill task to delink housing financing from CPF completely, more measures can be implemented to ensure that younger Singaporeans buy only homes they can afford. This is a viewpoint that has garnered support among retirement-planning professionals in the private sector.

The professors’ housing consumption sensitivity analysis indicated that there is a strong trade-off between housing consumption and retirement adequacy. For example, a median male earner (monthly salary of S$2,500) who enters the workforce today and goes on to buy a four-room HDB flat will have a net Income Replacement Ratio (IRR) of 70 per cent. But if he buys a five-room flat instead, his net IRR dips to 58 per cent, a staggering 12-percentage-point differential.

IRR is defined as the percentage of working income an individual needs to maintain the same standard of living in retirement he had enjoyed while still active in the workforce. The lower the IRR, the worse off the retiree will be in his golden years.

To expand upon the professors’ prudent approach, a cap could be imposed on the amount of Ordinary Account funds that is made available for housing purchases. For example, a 50-per-cent cap on the use of CPF funds to finance housing will ensure more savings will be set aside for retirement.

Let’s use the same median male earner with a monthly salary of S$2,500 to illustrate this. Let’s say he wants to buy a new four-room HDB flat and needs to take a 30-year-old loan of S$300,000 at an interest rate of 1.5 per cent. If the 50 per cent cap is applied, his household will have to come up with an additional S$6,155 per annum in cash payments for the flat. This transfers into almost S$513 per month, or about 25 per cent of his take-home pay of S$2,000. This percentage would not be considered onerous and would drop as his income grows along with career progression. The upside for him is that he would get S$15,000 more in retirement income every year when he retires at 62.

The policy rationale allowing Singaporeans to draw heavily on their CPF funds to pay for housing in the past is understandable as the priority was to make Singaporeans homeowners and to give them a stake in the nation’s future. But with greater life expectancy and an ageing population, the need to help Singaporeans enjoy retirement adequacy suggests it is perhaps time to rethink this policy.

If young Singaporeans, confident of their future earning power, want to buy a bigger first home, they should by all means seize that opportunity. But the caveat is that they should plan their finances carefully and not depend primarily on their CPF accounts.

A cap on the use of CPF for housing could provide the balance necessary to fund property ownership, but not at the expense of retirement funds.

ABOUT THE AUTHOR:

Marcus Kok is principal pension consultant at PwC Asia Actuarial Services.

[darkseed73]

Current CPF already have a CAP in paying housing.

That's 120% of the value of your house.

What else govt wants? Completely disallow us to use CPF? A lot of ppl will be unhappy becos of this for sure.

[Patrickstar]

They dare not disallow use of cpf for housing as that will cost them their votes dearly.

[Arcachon]

http://www.ires.nus.edu.sg/aboutus/afrbio.aspx?afrID=10

When you are someone like her "Associate Professor Lum Sau Kim from the National University of Singapore (NUS) noted that the use of Central Provident Fund (CPF) monies for housing payment had constrained retirement adequacy." you are paying max CPF. How much she know about the poor.


Limits on CPF contributions

Ordinary Wage (OW) Ceiling

The maximum amount of CPF contributions payable is based on a monthly salary ceiling of $5,000 for Ordinary Wages.

http://mycpf.cpf.gov.sg/Employers/Em...OW_Ceiling.htm

Limits on CPF contributions


Additional Wage (AW) Ceiling

The Additional Wage (AW) Ceiling sets the maximum amount of Additional Wages on which CPF contributions are payable per year. An employee’s AW Ceiling is computed on a per employer basis.

The AW Ceiling from 2012 is provided below:

$85,000* - Total Ordinary Wages subject to CPF for the year

*Equivalent to 17 months x $5,000

For more information, please click on Examples on the computations of the AW Ceiling. You may use the Additional Wage Ceiling Calculator to help you with the computation.

Employers are required to monitor and limit the contributions on Additional Wages of their employees. This is to prevent refund of excess payment and avoid situations where refunds could not be made due to insufficient funds in their employees’ CPF accounts.

http://mycpf.cpf.gov.sg/Employers/Em...AW_Ceiling.htm

[Kelonguni]

This will be the second mother of all CMs. CM10.

Everything will tumble like bowling pins. Too disastrous I feel, although my personal take is that if die die need CPF to sustain mortage payment, then a person might consider himself or herself a little over-leveraged. It should be the case where cash payment still can survive, CPF payment also can. Then one is ready to level up.

[leftfield]

I suspect the whole intention of letting people use CPF to pay for housing has 2 reasons:

1) Limit the CPF amount that people can withdraw upon their retirement. Imagine a Singapore where people literally retire as millionaires if CPF monies cannot be diverted for other uses. Whoever thought of using CPF to pay for your HDB flats is a genius, not it only ensures that CPF does not get exceedingly high in everyone's account, this also translates to profits for HDB!

2) Support the HDB sales market. If CPF cannot or is greatly limited in use for paying for housing instalments, HDB will have to start building rental flats instead. The HDB resale market will literally disintegrate overnight.

How to limit CPF usage then?

[Arcachon]

Heng Ah, have not touch CPF since playing with private property. Ah Kong money is not your money, always let CPF worry how to pay you the interest instead of using it to play property.

Mother of CMs also no worry.

[Arcachon]

I suspect the whole intention of letting people use CPF to pay for housing has 2 reasons:

1) Limit the CPF amount that people can withdraw upon their retirement. (Don't Agree) Imagine a Singapore where people literally retire as millionaires if CPF monies cannot be diverted for other uses. (Don't agree) Whoever thought of using CPF to pay for your HDB flats is a genius(Agree), not it only ensures that CPF does not get exceedingly high in everyone's account, this also translates to profits for HDB!(Don't Agree)

2) Support the HDB sales market(Agree). If CPF cannot or is greatly limited in use for paying for housing installments, HDB will have to start building rental flats instead. (Agree) The HDB resale market will literally disintegrate overnight. (Depend)
How to limit CPF usage then?

1. Depend on which part of development period in Singapore. In the early days CPF is for the people to help government build Housing and people to pay. If you did not use the money in CPF to buy HDB you are in deep shit if you retire now.

2. Present day, the government do not need the money to build HDB. They need the people to save for their retirement and they know money in CPF interest is lower than inflation.

[darkseed73]

Heng Ah, have not touch CPF since playing with private property. Ah Kong money is not your money, always let CPF worry how to pay you the interest instead of using it to play property.

Mother of CMs also no worry.

We cannot behave like those elites which think only themselves and forget abt others below.

What may not affect you does affect millions of NORMAL ppl.

That's the whole point of discontentment.

[teddybear]

They are climbing up the wrong trees (don't know intentional or un-intentional).............

The huge increase in inflation over the last >15 years is what causes people not to have enough for retirement despite getting paid $12xx per month from CPF Life !!!!!!!!!!!!!!!!!!! As a rough count, living costs have more than doubled or even tripled over the past 15 years!

What causes the huge increase in inflation over the last >15 years? A few factors:

1) GST implementation and increase...

2) Govt bodies like hospitals trying to make profit and hence milking the people and jacking up prices of medicine and medical services... (read the forum letter over past few weeks and you will know complain about medical costs!)

3) Formation of more and more REITs

4) Jacking up of commercial properties' rentals and govt didn't do anything about it, thus costs ultimately pased down to consumers and the general public and population..............

BY
MARCUS KOK
PUBLISHED: 4:03 AM, SEPTEMBER 24, 2014
At a recent seminar, Associate Professor Lum Sau Kim from the National University of Singapore (NUS) noted that the use of Central Provident Fund (CPF) monies for housing payment had constrained retirement adequacy.

“If so much of CPF funds are dedicated to housing, then we have poorly diversified household portfolios ... the nest egg that we have will be vulnerable to housing sector shocks and greater risks,” she said.

This raised an important question on whether the use of CPF savings for housing has been too liberal and whether it is time to impose limits to enhance Singaporeans’ retirement adequacy.

There are pros and cons to linking CPF to housing. The benefit is clear, for without the provision to use CPF to fund property loans, far fewer Singaporeans would be able to buy a home. Currently, home ownership rate stands at about 90 per cent, among the highest in the world.

However, on the flipside, linking CPF monies to housing makes Singaporeans’ retirement funds vulnerable to the cyclical patterns of the property market. For instance, when the property market contracts and valuations plunge, CPF members who are retiring and intending to unlock some or all of their housing assets to fund their retirement could be heavily hit.

Even if property prices surge, they may not be able to afford another home after selling the current one — unless they move in with family or friends. So while they might be sitting on an S$800,000 property, they may well have much less in the bank for their daily needs.

The Government is clearly keen to address Singaporeans’ concerns on retirement adequacy. The recent revision to the Lease Buyback Scheme — where Housing and Development Board (HDB) flat owners sell back part of the remaining lease to the Government — is a case in point.

But I believe the crux of the problem is the way Singaporeans use their CPF monies to buy property.

Many Singaporeans are currently pledging most, if not all, of their Ordinary Account contributions to housing, an illiquid asset. This might not be the most prudent approach to retirement planning. Even if there is a lack of viable investment vehicles in Singapore for retirement planning, a retirement portfolio needs to be well-diversified and not one that places most, if not all, eggs into one basket. There should also be a cash savings component in the portfolio that caters for a rainy day such as a medical emergency.

HOW A CAP WORKS

In a 2012 paper, NUS economic professors Chia Ngee Choon and Albert Tsui suggested that while it may be an uphill task to delink housing financing from CPF completely, more measures can be implemented to ensure that younger Singaporeans buy only homes they can afford. This is a viewpoint that has garnered support among retirement-planning professionals in the private sector.

The professors’ housing consumption sensitivity analysis indicated that there is a strong trade-off between housing consumption and retirement adequacy. For example, a median male earner (monthly salary of S$2,500) who enters the workforce today and goes on to buy a four-room HDB flat will have a net Income Replacement Ratio (IRR) of 70 per cent. But if he buys a five-room flat instead, his net IRR dips to 58 per cent, a staggering 12-percentage-point differential.

IRR is defined as the percentage of working income an individual needs to maintain the same standard of living in retirement he had enjoyed while still active in the workforce. The lower the IRR, the worse off the retiree will be in his golden years.

To expand upon the professors’ prudent approach, a cap could be imposed on the amount of Ordinary Account funds that is made available for housing purchases. For example, a 50-per-cent cap on the use of CPF funds to finance housing will ensure more savings will be set aside for retirement.

Let’s use the same median male earner with a monthly salary of S$2,500 to illustrate this. Let’s say he wants to buy a new four-room HDB flat and needs to take a 30-year-old loan of S$300,000 at an interest rate of 1.5 per cent. If the 50 per cent cap is applied, his household will have to come up with an additional S$6,155 per annum in cash payments for the flat. This transfers into almost S$513 per month, or about 25 per cent of his take-home pay of S$2,000. This percentage would not be considered onerous and would drop as his income grows along with career progression. The upside for him is that he would get S$15,000 more in retirement income every year when he retires at 62.

The policy rationale allowing Singaporeans to draw heavily on their CPF funds to pay for housing in the past is understandable as the priority was to make Singaporeans homeowners and to give them a stake in the nation’s future. But with greater life expectancy and an ageing population, the need to help Singaporeans enjoy retirement adequacy suggests it is perhaps time to rethink this policy.

If young Singaporeans, confident of their future earning power, want to buy a bigger first home, they should by all means seize that opportunity. But the caveat is that they should plan their finances carefully and not depend primarily on their CPF accounts.

A cap on the use of CPF for housing could provide the balance necessary to fund property ownership, but not at the expense of retirement funds.

ABOUT THE AUTHOR:

Marcus Kok is principal pension consultant at PwC Asia Actuarial Services.

[Arcachon]

They are climbing up the wrong trees (don't know intentional or un-intentional).............

The huge increase in inflation over the last >15 years is what causes people not to have enough for retirement despite getting paid $12xx per month from CPF Life !!!!!!!!!!!!!!!!!!! As a rough count, living costs have more than doubled or even tripled over the past 15 years!

What causes the huge increase in inflation over the last >15 years? A few factors:

1) GST implementation and increase...

2) Govt bodies like hospitals trying to make profit and hence milking the people and jacking up prices of medicine and medical services... (read the forum letter over past few weeks and you will know complain about medical costs!)

3) Formation of more and more REITs

4) Jacking up of commercial properties' rentals and govt didn't do anything about it, thus costs ultimately pased down to consumers and the general public and population..............

They need to increase the inflation otherwise people got nothing better to do they start to protest for gay right, animal right, insect right....... No money, they will be busy working no time to protest.

[Arcachon]

We cannot behave like those elites which think only themselves and forget abt others below.

What may not affect you does affect millions of NORMAL ppl.

That's the whole point of discontentment.

How many people will slow down to listen what is going on. If you tell them the Bank create Money, how many people will believe you.

In this internet age, how many willing to find out from the internet what going on in the World.

[teddybear]

Is this so? If you have little to no money, you will be very happy with PGP, with some CPF top-ups, some hdb maintenance fee rebates, some GST rebates, some extra housing grants, etc etc.............. Wow! Like that sure can win votes??????????????

They need to increase the inflation otherwise people got nothing better to do they start to protest for gay right, animal right, insect right....... No money, they will be busy working no time to protest.

[3C]

[QUOTE=darkseed73;490449]We cannot behave like those elites which think only themselves and forget abt others below.

What may not affect you does affect millions of NORMAL ppl.

That's the whole point of discontentment.[/QUOT
Why you called this elites. I used my cpf all the way and accumulate cash. So i am poor. Does it means one that shout louder always win

[mosaic]

They are climbing up the wrong trees (don't know intentional or un-intentional).............

The huge increase in inflation over the last >15 years is what causes people not to have enough for retirement despite getting paid $12xx per month from CPF Life !!!!!!!!!!!!!!!!!!! As a rough count, living costs have more than doubled or even tripled over the past 15 years!

What causes the huge increase in inflation over the last >15 years? A few factors:

1) GST implementation and increase...

2) Govt bodies like hospitals trying to make profit and hence milking the people and jacking up prices of medicine and medical services... (read the forum letter over past few weeks and you will know complain about medical costs!)

3) Formation of more and more REITs

4) Jacking up of commercial properties' rentals and govt didn't do anything about it, thus costs ultimately pased down to consumers and the general public and population..............

Actually I don t think core inflation has increased that much over the years. Think about how much food costs over the years versus your salary increments. Nowadays young degree holders start at 2+ close to 3k. Kopitiam food still can get at $3+. teh tarik at $1. Its people s lifestyles and expectations that have increased. People want to eat more at restaurants, travel more etc.

That said I think inflation was a problem in 2010 - 2013 when property prices and car prices were screaming through the roof. But the recent government measures have tamed that somewhat and honestly if you re a simple fella going for BTOs property s not gonna hit you that hard and if you can tahan mrt for the first five years of your life (sans breakdowns) its not all that bad. But yes in general inflation over the last couple of years have been higher than usual, though i wouldn t go far as to say last 15 years. more like from 2010 to 2013 which was no doubt partly due to all the money printing and also partly due to the goverment not anticipating the infrastructure needs with the population growth. they were too darn concerened about economic growth.

[pmet]

BY
MARCUS KOK
PUBLISHED: 4:03 AM, SEPTEMBER 24, 2014
At a recent seminar, Associate Professor Lum Sau Kim from the National University of Singapore (NUS) noted that the use of Central Provident Fund (CPF) monies for housing payment had constrained retirement adequacy.

“If so much of CPF funds are dedicated to housing, then we have poorly diversified household portfolios ... the nest egg that we have will be vulnerable to housing sector shocks and greater risks,” she said.

This raised an important question on whether the use of CPF savings for housing has been too liberal and whether it is time to impose limits to enhance Singaporeans’ retirement adequacy.

There are pros and cons to linking CPF to housing. The benefit is clear, for without the provision to use CPF to fund property loans, far fewer Singaporeans would be able to buy a home. Currently, home ownership rate stands at about 90 per cent, among the highest in the world.

However, on the flipside, linking CPF monies to housing makes Singaporeans’ retirement funds vulnerable to the cyclical patterns of the property market. For instance, when the property market contracts and valuations plunge, CPF members who are retiring and intending to unlock some or all of their housing assets to fund their retirement could be heavily hit.

Even if property prices surge, they may not be able to afford another home after selling the current one — unless they move in with family or friends. So while they might be sitting on an S$800,000 property, they may well have much less in the bank for their daily needs.

The Government is clearly keen to address Singaporeans’ concerns on retirement adequacy. The recent revision to the Lease Buyback Scheme — where Housing and Development Board (HDB) flat owners sell back part of the remaining lease to the Government — is a case in point.

But I believe the crux of the problem is the way Singaporeans use their CPF monies to buy property.

Many Singaporeans are currently pledging most, if not all, of their Ordinary Account contributions to housing, an illiquid asset. This might not be the most prudent approach to retirement planning. Even if there is a lack of viable investment vehicles in Singapore for retirement planning, a retirement portfolio needs to be well-diversified and not one that places most, if not all, eggs into one basket. There should also be a cash savings component in the portfolio that caters for a rainy day such as a medical emergency.

HOW A CAP WORKS

In a 2012 paper, NUS economic professors Chia Ngee Choon and Albert Tsui suggested that while it may be an uphill task to delink housing financing from CPF completely, more measures can be implemented to ensure that younger Singaporeans buy only homes they can afford. This is a viewpoint that has garnered support among retirement-planning professionals in the private sector.

The professors’ housing consumption sensitivity analysis indicated that there is a strong trade-off between housing consumption and retirement adequacy. For example, a median male earner (monthly salary of S$2,500) who enters the workforce today and goes on to buy a four-room HDB flat will have a net Income Replacement Ratio (IRR) of 70 per cent. But if he buys a five-room flat instead, his net IRR dips to 58 per cent, a staggering 12-percentage-point differential.

IRR is defined as the percentage of working income an individual needs to maintain the same standard of living in retirement he had enjoyed while still active in the workforce. The lower the IRR, the worse off the retiree will be in his golden years.

To expand upon the professors’ prudent approach, a cap could be imposed on the amount of Ordinary Account funds that is made available for housing purchases. For example, a 50-per-cent cap on the use of CPF funds to finance housing will ensure more savings will be set aside for retirement.

Let’s use the same median male earner with a monthly salary of S$2,500 to illustrate this. Let’s say he wants to buy a new four-room HDB flat and needs to take a 30-year-old loan of S$300,000 at an interest rate of 1.5 per cent. If the 50 per cent cap is applied, his household will have to come up with an additional S$6,155 per annum in cash payments for the flat. This transfers into almost S$513 per month, or about 25 per cent of his take-home pay of S$2,000. This percentage would not be considered onerous and would drop as his income grows along with career progression. The upside for him is that he would get S$15,000 more in retirement income every year when he retires at 62.

The policy rationale allowing Singaporeans to draw heavily on their CPF funds to pay for housing in the past is understandable as the priority was to make Singaporeans homeowners and to give them a stake in the nation’s future. But with greater life expectancy and an ageing population, the need to help Singaporeans enjoy retirement adequacy suggests it is perhaps time to rethink this policy.

If young Singaporeans, confident of their future earning power, want to buy a bigger first home, they should by all means seize that opportunity. But the caveat is that they should plan their finances carefully and not depend primarily on their CPF accounts.

A cap on the use of CPF for housing could provide the balance necessary to fund property ownership, but not at the expense of retirement funds.

ABOUT THE AUTHOR:

Marcus Kok is principal pension consultant at PwC Asia Actuarial Services.

I support!

If you're a peasant, don't buy such a big house. Nowadays when I see every graduate korsong their CPF to buy a 5-Room flat indicates an over-rated emphasis on property being their retirement plan. Property != money and the govt's emphasis on property being a long term retirement plan is flawed (since they also cannot guarantee that price will never decrease). Property should be for holding, not for you to spend like money and neither does it has the liquidity of money.

[minority]

well people KPKB say their CPF never enough. Coz they use it to buy 3 house.. for example. So whose fault. using CPF for the primary roof is reasonable. when using CPF to buy more than 2nd n 3rd n 4th.. thats too much. Coz then KPKB say bo CPF to retire. and when told to sell ur assets... them claim sentimental value etc... ah kong never take care retirement? So whose fault?

Those assets rich cash poor folks.

[minority]

They are climbing up the wrong trees (don't know intentional or un-intentional).............

The huge increase in inflation over the last >15 years is what causes people not to have enough for retirement despite getting paid $12xx per month from CPF Life !!!!!!!!!!!!!!!!!!! As a rough count, living costs have more than doubled or even tripled over the past 15 years!

What causes the huge increase in inflation over the last >15 years? A few factors:

1) GST implementation and increase...

2) Govt bodies like hospitals trying to make profit and hence milking the people and jacking up prices of medicine and medical services... (read the forum letter over past few weeks and you will know complain about medical costs!)

3) Formation of more and more REITs

4) Jacking up of commercial properties' rentals and govt didn't do anything about it, thus costs ultimately pased down to consumers and the general public and population..............

Talk cock bullshit. where don't hv inflation. the large part of the run up in inflation are from the QE liquidity. u mean there was inflation and no pay increase? Wow how much crap can come out from your. always the usual shit.

[Jem]

Using CPF to pay for housing is to ensure that a high percentage of citizens will be home owners. So the government will not have to subsidize many old and homeless people. U can be asset rich, cash poor but u will not be out on the streets.
Supposed to also encourage and make it easier for youngsters to settle down and start a family earlier though it isn't quite working out this way these days.

Basic necessities hasn't really inflated that much in the last 10 years and I agree it is people's expectations and lifestyle that have inflated far greater.
A fresh grad should be drawing a higher salary now (not sure how much now though) cuz 10 years ago it was already closer to $2500 or higher.

[heehee]

Inflation due to QE only? No wonder pay rise of majority of population lag inflation by so much!
Inflation would had been worse if not because S$ rise from 1.8x to 1.2x vs US$ ! However, S$ will start to drop against US$ from late 2015 again & SG inflation will continue to b high?

Talk cock bullshit. where don't hv inflation. the large part of the run up in inflation are from the QE liquidity. u mean there was inflation and no pay increase? Wow how much crap can come out from your. always the usual shit.

[Arcachon]

Inflation due to QE only? No wonder pay rise of majority of population lag inflation by so much!
Inflation would had been worse if not because S$ rise from 1.8x to 1.2x vs US$ ! However, S$ will start to drop against US$ from late 2015 again & SG inflation will continue to b high?

Singapore Housing will be cheaper, Should encourage more people to downgrade and wait for Durian to Drop.

[pmet]

From 2015, higher interest rates will tame inflation. Think it will stay flat ___

Hot money will flow out of Asia and this will take some more heat out of SG market.

After a long wait, finally this is materializing.

Don't believe me? Wait and see

[Arcachon]

I Believe you, do you believe Bank don't need your deposit to give loan. They just type in their computer system asset and liability.

Do you think they need to raise interest rate to get your deposit then they need to find someone to loan the money so that they can earn the interest to pay.

[pmet]

I Believe you, do you believe Bank don't need your deposit to give loan. They just type in their computer system asset and liability.

Do you think they need to raise interest rate to get your deposit then they need to find someone to loan the money so that they can earn the interest to pay.

??? you think too much bro. Raising interest rates is not about getting your deposit, it's more for the bank's profit margin. Moreover, it's not their choice as SG's SIBOR is pegged to FED's rates -- otherwise, more funds will flow out of SG given the interest rates disparity. Bottom line is... banks will all huat ah!

[Arcachon]

??? you think too much bro. Raising interest rates is not about getting your deposit, it's more for the bank's profit margin. Banks will all huat ah! But yes, it's all about the numbers in their computer.

What determine Bank profit margin, interest or bank loan.

When interest go up, start to have bad loan, start to write off, start to have less loan, bank profit margin go up ??????

If you are the Bank, which would you prefer, high loan low interest or high interest low loan more bad debt more write off.

America have the largest amount of debt, they think high interest will help their economic and generate more job.

[pmet]

What determine Bank profit margin, interest or bank loan.

When interest go up, start to have bad loan, start to write off, start to have less loan, bank profit margin go up ??????

If you are the Bank, which would you prefer, high loan low interest or high interest low loan more bad debt more write off.

America have the largest amount of debt, they think high interest will help their economic and generate more job.

It's no coincident that CitiBank was the world's largest bank in capitalization before the Leman Bro's hoohaa. High interest and high debt doesn't automatically equate high write down although it's high in probability. You're assuming that high write down automatically follows after high interest and high debt which isn't true in a healthy economy. Just to recap... back in 2006 interest rates was 5.75% and that was after 911. Banks were fighting for our FD during those times. I can't forsee how high interest rates will climb in the next few years but most likely it will not be much lower than 5.75%. If I were a bank, I would prefer high interest since after Leman bros, banks can no longer take too much risk (loan to asset ratio). Since banks are now bound by a treaty, they will have to boost their capital more than what they did in the past, in order to loan. Do you see another 2006 coming?

[teddybear]

Singapore do not depend on interest rates to get more funds inflow because historily, Singapore interest rates is always lower than US by 2-3% points...................
If Singapore needs interest rate parity with US to keep or get funds in, Singapore fund outflow would have hollowed out Singapore long ago (if your theory holds)...............

Low interest rate seems to be better for almost everybody in Singapore....

??? you think too much bro. Raising interest rates is not about getting your deposit, it's more for the bank's profit margin. Moreover, it's not their choice as SG's SIBOR is pegged to FED's rates -- otherwise, more funds will flow out of SG given the interest rates disparity. Bottom line is... banks will all huat ah!

[Arcachon]

It's no coincident that CitiBank was the world's largest bank in capitalization before the Leman Bro's hoohaa. High interest and high debt doesn't automatically equate high write down although it's high in probability. You're assuming that high write down automatically follows after high interest and high debt which isn't true in a healthy economy. Just to recap... back in 2006 interest rates was 5.75% and that was after 911. Banks were fighting for our FD during those times. I can't forsee how high interest rates will climb in the next few years but most likely it will not be much lower than 5.75%. If I were a bank, I would prefer high interest since after Leman bros, banks can no longer take too much risk (loan to asset ratio). Since banks are now bound by a treaty, they will have to boost their capital more than what they did in the past, in order to loan. Do you see another 2006 coming?

Back in 2006, the World have not taste Alcohol (QE only in Japan) before. AFC 1997 the World was told when you have a economic problem IMF, World Bank can help mess your country.

Fast forward to 2007-2008 Global Financial Crisis, the America let the world taste Alcohol (QE) and life have never being the same before.

We have Japan, UK, US, ECB ....... going for QE, the Bank is flood with money they don't need your FD anymore, raise interest rate and their profit will go up ???????

http://en.wikipedia.org/wiki/Quantitative_easing

Question : When HDB need money to build New Town, where they get the money? CPF, Bank or Bond.

[Arcachon]