mr funny
10-07-07, 04:08
Published July 10, 2007
S'pore banks' property exposure below 35%
Citigroup expects exposure to reach closer to 30% by year-end
By CHOW PENN NEE
SINGAPORE banks are not overly exposed to the red-hot property sector, said Citigroup economist Chua Hak Bin.
In a report yesterday, he estimated that the overall property-related exposure 'is probably still comfortably below 35 per cent', the rule that 'limits property-related loan exposure to 35 per cent as a proportion of total non-bank loans and debt instruments'.
In an earlier report last month, Dr Chua had highlighted that the financial industry's exposure to the property sector might require the government to apply brakes. But the Monetary Authority of Singapore had reiterated then that its existing measures were adequate.
'As of May 2007, we assume that only about 25 per cent of mortgages and 33 per cent of loans to financial institutions are property-related. This produces an exposure limit of 26.9 per cent,' said the latest Citigroup report.
'Adjusting both these percentages to about 28 per cent and 40 per cent respectively would still put the property-related exposure at only about 28.7 per cent, still comfortably below the 35 per cent limit.'
Dr Chua expects the exposure to accelerate and reach closer to 30 per cent by the end of this year.
'Mortgage growth is accelerating, particularly as completion numbers rise,' he noted. 'The deferred payment scheme has delayed the financing cycle for consumers as compared to the past.'
Indications are that most of the local banks are still below the limits, while some of the Qualified Full Banks may have higher property-related exposure limits and possibly closer to the 35 per cent limit, the report said.
'Local banks generally have a wider reach to the owner-occupied mortgage mass market, which does not fall into the 35 per cent limit and at the same time raises the overall loan base.'
Dr Chua noted that the already high home ownership levels - at about 93 per cent - suggest a higher proportion of new loans are for investment rather than owner-occupation.
Banks, as they approach the 35 per cent limit, will likely change their behaviour, he said.
The interest rate spread between owner-occupied and investment-related mortgage rates will likely widen.
Banks may also choose to carve out and sell off their property-related exposure to the capital markets.
Likewise, larger property companies may turn to the capital markets for raising funds if the banking system becomes more constrained or pricing becomes more expensive. 'Such responses will keep the overall property exposure within the banking system in check,' he said.
He also noted that property speculation is still below the highs seen during the early 90s boom and is confined to selected locations, namely Marina and Sentosa.
S'pore banks' property exposure below 35%
Citigroup expects exposure to reach closer to 30% by year-end
By CHOW PENN NEE
SINGAPORE banks are not overly exposed to the red-hot property sector, said Citigroup economist Chua Hak Bin.
In a report yesterday, he estimated that the overall property-related exposure 'is probably still comfortably below 35 per cent', the rule that 'limits property-related loan exposure to 35 per cent as a proportion of total non-bank loans and debt instruments'.
In an earlier report last month, Dr Chua had highlighted that the financial industry's exposure to the property sector might require the government to apply brakes. But the Monetary Authority of Singapore had reiterated then that its existing measures were adequate.
'As of May 2007, we assume that only about 25 per cent of mortgages and 33 per cent of loans to financial institutions are property-related. This produces an exposure limit of 26.9 per cent,' said the latest Citigroup report.
'Adjusting both these percentages to about 28 per cent and 40 per cent respectively would still put the property-related exposure at only about 28.7 per cent, still comfortably below the 35 per cent limit.'
Dr Chua expects the exposure to accelerate and reach closer to 30 per cent by the end of this year.
'Mortgage growth is accelerating, particularly as completion numbers rise,' he noted. 'The deferred payment scheme has delayed the financing cycle for consumers as compared to the past.'
Indications are that most of the local banks are still below the limits, while some of the Qualified Full Banks may have higher property-related exposure limits and possibly closer to the 35 per cent limit, the report said.
'Local banks generally have a wider reach to the owner-occupied mortgage mass market, which does not fall into the 35 per cent limit and at the same time raises the overall loan base.'
Dr Chua noted that the already high home ownership levels - at about 93 per cent - suggest a higher proportion of new loans are for investment rather than owner-occupation.
Banks, as they approach the 35 per cent limit, will likely change their behaviour, he said.
The interest rate spread between owner-occupied and investment-related mortgage rates will likely widen.
Banks may also choose to carve out and sell off their property-related exposure to the capital markets.
Likewise, larger property companies may turn to the capital markets for raising funds if the banking system becomes more constrained or pricing becomes more expensive. 'Such responses will keep the overall property exposure within the banking system in check,' he said.
He also noted that property speculation is still below the highs seen during the early 90s boom and is confined to selected locations, namely Marina and Sentosa.