Singapore banks to gain from property cooling measures: Moody's

Mon, Jul 09, 2018

Janice Heng

SINGAPORE banks are expected to benefit from property cooling measures which kicked in on July 6, which will reduce speculative demand for residential properties and increase banks' buffers "if and when property prices fall significantly", ratings agency Moody's said on Monday.

The measures, which include higher additional buyer's stamp duty rates and tighter loan-to-value (LTV) limits, reduce the risk of a property price bubble, future price shocks and losses from mortgage loans, which is credit positive for Singapore’s banks, it added.

"We expect that the new measures will dampen bank loans for residential property purchases and the resurgence of investment and speculative purchasing," said Moody's Investors Service senior analyst Simon Chen. "We also expect the measures will improve banks’ newly originated housing loans asset quality amid Singapore’s rising interest rate environment and strong supply pipeline."

At the end of March 2018, the three large Singapore banks - DBS, OCBC and UOB - had 42 to 50 per cent of their loan portfolio exposed to the property sector, including housing loans. Moody's expects household loan delinquencies to remain low, because measures such as the total debt-service ratio cap of 60 per cent have constrained household credit growth and excessive borrowing.

Singapore households as a whole also have a very strong net asset position which will provide an extra buffer to service their debt, with total household financial assets being more than 3.5 times household liabilities at the end of 2017.

Moody's noted that Singapore's system-wide non-performing loan ratio for mortgages was 0.4 per cent at the end of 2017, with banks having a low average mortgage LTV ratio of 53 per cent. Fewer than 5 per cent of mortgages have LTV ratios exceeding 80 per cent, and banks in Singapore have not been allowed to offer housing loans at such high LTV ratios since 2013.