Published September 10, 2010

S'pore's property cooling steps will benefit banks: Moody's

It cites reduced exposure to highly leveraged clients and future price shocks


RECENT measures to cool the property market could bring short-term pain but longer-term gain to banks in Singapore, according to Moody's Investors Service.

The ratings agency said in a report that the measures will benefit Singapore banks over the medium term, by cutting their exposure to highly leveraged customers and future property price shocks.

'In the short term, however, these benefits will be less obvious because credit costs on housing loans usually remain low until property prices start falling,' it said.

Also, banks' interest income could be hit by a decrease in loan demand caused by the measures.

Last week, the government introduced new rules to further reduce speculation in the property market. These include tighter financing guidelines which would hit buyers if they already have outstanding home loans - they would be able to borrow only up to 70 per cent of the new unit's value, down from 80 per cent.

These buyers would also have to make a minimum cash payment of 10 per cent of the valuation limit, up from 5 per cent.

Since the measures came into effect, property buying sentiment has weakened somewhat, and at least one bank in Singapore has seen the number of home loan applications dip.

Still, a healthy property sector is critical for DBS, OCBC Bank and United Overseas Bank, Moody's said. They have 'significant exposures to the property market (52-54 per cent of total loans as of June 30, the bulk of which are to Singaporean borrowers) through their housing loans and lending to the construction and real estate sectors'.

Bank of Singapore, which focuses on private banking, could also benefit from the measures. While the bank has little direct exposure to the property market, Moody's believes that 'its business flow could fall if the net worth of its clients declines because of significant drops in property prices'.

In a Sept 2 report, DBS Vickers said that the measures would have a 'neutral to mildly negative' impact on the local banks. They have granted loans with loan-to-value limits of 70-80 per cent, so the new limit is unlikely to affect mortgage loan momentum in a big way, it explained.