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Singapore banks resilient against rising property risk | 02 February 2015

Despite falling property prices in Singapore, the republic’s banks are expected to weather a significant rise in credit costs, according to a new report.

Local banks DBS, Overseas-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) have healthy loss-absorption buffers, reports Fitch Ratings. It means that although the property market correction may place pressure on the banking system loan quality, the banks won’t be negatively affected, according to the ratings agency in its latest Asia-Pacific Chart of the Month report.

Residential property prices in Singapore are down five to eight per cent from their peak in the middle of 2013, notes This contrasts with Hong Kong where steady demand and supply shortages continue to drive up prices.
Nevertheless, the company’s latest report released today (Friday 30 January) shows signs of positivity. Fitch expects Singapore banks’ potential losses from mortgages to be minimal due to relatively healthy household balance sheets and adequate collateralisation.

In a statement, the agency notes: “While we anticipate Singapore banks’ loan losses to rise as the property market continues to cool, Fitch expects the Monetary Authority of Singapore (MAS) to remain vigilant for signs of stress”.
It adds: “The agency remains watchful of potential second-order effects of the housing slowdown, such as weaker private consumption and rising construction company defaults”.

The Singapore government has also played its part over the past few years with its macro-prudential policies. These included measures to strengthen mortgage underwriting practices at local banks, helping to keep the delinquency rate for housing loans extremely low. At the end of the September this rate was a low 0.36 per cent in both Singapore and Hong Kong.

It’s clear the market is gaining in strength, as a new acquisition in downtown Singapore demonstrates; the AXA Tower has been bought by Perennial Retail Estate Holdings (PREH) for S$1.17 billion. The 50-story office tower has a net rental area of about 674,000 square feet, notes, which includes retail space. The building has significant investment opportunity with an unutilised plot ratio that translates to an additional Gross Floor Ratio of more than 212,000 square feet.

The views expressed in this post are those of the author and are not necessarily those of Qube Global Software. All facts are verified where possible directly by the author.

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Philippa Cunningham
Posted by Philippa Cunningham
+44 (0) 20 7726 3200.
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