DBS says it's not over exposed to speculative property deals

Published July 5, 2007

DBS says it's not over exposed to speculative property deals

Group says 80% of its housing loans are to owner-occupiers

By CHOW PENN NEE


THE red-hot property market has thrust banks into the spotlight over their heavy lending to developers and property owners.

Some have said that banks might be overly exposed to the property market boom especially if the market turns out to have been sustained by speculators - but this is not the case at DBS, one of its officials emphasised yesterday.

The bank's regional head of consumer banking, Edmund Koh, said in a media interview that DBS's exposure to speculative property buying is not excessive.

'One in five of our housing loans, or only 20 per cent, are taken up for property investment. The other 80 per cent are loans to owner-occupied property,' he said, adding that although loans being taken up for property investment is 'creeping up, it is still not alarming'.

This compares to the industry standard of 30 per cent to investment property and, 70 per cent to owner-occupied property, he said. 'Our portfolio is still good, we don't suffer too much losses,' Mr Koh said.

He said the bank has learned by experience not to lend excessively to speculators. 'We found that about five years ago, after the September 11 attack and during the Sars period, our losses were low because most of our loans were to owner-occupied property,' he said.

Speculators, with their 'flipping' behaviour - in which homes can be bought and sold several times before they are even built - would be riskier, he said. The bank said it looks at credit risks seriously, like a customer's debt-servicing ability and a property's loan-to-valuation ratio.

As at the end of March, housing loans made up 25 per cent of DBS's lending, the bank's annual report shows.

In an answer to a question on whether DBS would securitise its loans portfolio, Mr Koh said: 'Securitisation would only take place if margins are good,' adding that margins now are very thin.

The consumer banking arm of DBS now constitutes nearly 40 per cent of group earnings, totalling $858 million last year, and Mr Koh said he hopes the consumer bank can grow in the 'mid teens' year-on-year.

He is currently concentrating on putting resources into growing the China and Indonesia market. But Singapore accounts for the lion's share of the consumer banking profits, racking up more than 80 per cent of revenue.

He said that - contrary to what many people think - Singapore's banking industry is not saturated. 'We just need to create more needs for consumers and satisfy those needs,' he said.

To that end, the bank yesterday announced the launch of a new credit card aimed at high-spending frequent-flyers, estimated to be about 50,000 people.

The DBS Altitude American Express Card is aimed at people earning at least $80,000, and offers them a credit limit of up to four times their salary.

It claims to give the best air mile conversion rate, or three times better than the market offers on average.

Customers can choose from 38 international airlines across the networks of KrisFlyer and Star Alliance, Asia Miles and One World. It features a 24 hour butler service for cardmembers.

DBS has more than two million credit cards in circulation in the region.

July 5, 2007

DBS wary amid surge in lending to property speculators

By Grace Ng, FINANCE REPORTER


BUYERS dipping into the resurgent property market to snap up investment properties now account for one in five of all mortgages at DBS Bank.

And DBS expects this proportion to rise as more Singaporeans take out loans to pay for homes purchased using deferred payment schemes. But it says it is maintaining a cautious approach over lending funds for speculative buying of high-end properties.

Mr Edmund Koh, DBS head of regional consumer banking, said yesterday the proportion of its Singapore loans used to finance homes for investment purposes has been 'creeping up' recently to about 20 per cent.

But a further spike in home loans could come later, when investors on the deferred payment scheme for property need to finance their purchases, he noted.

Still, the bank is taking a cautious stance over its loans exposure to the more frothy part of the property market - high-end residential units which have attracted speculative activity.

'Our strategy...is to concentrate on owner-occupied properties, but still catering to the needs of customers who want to buy homes for investment. So we optimise risk,' said Mr Koh, at a press conference to discuss DBS' retail banking developments yesterday.

He added that the bank makes sure its portfolio is spread out between these two segments of properties, to avoid suffering losses for bad loans if the property market goes south and home-speculators take a hit.

This careful stance has not changed over the past five years. 'During the Sars and 9/11 crises, our losses on mortgages were lower than those of the market,' Mr Koh said.

This was because DBS had proportionately more loans for owner-occupied properties compared to other banks.

DBS has 'guidelines in place to manage risks' in its real estate loans exposure. It considers the ability of customers who service their total debt, the loan-to-value ratio of their properties and trends in asset price inflation.

DBS' consumer banking group contributed 39 per cent of the group's total profits at the end of last year, up from 17 per cent at the end of 2003.

Over the same period, the return on equity for the consumer banking segment rose from 14 per cent to 43 per cent, reflecting the strong growth and transformation of this business, said Mr Koh.

DBS has been improving customer service and 'diversifying its income streams'.

For instance, the bank's credit card business now derives 50 per cent of its revenues from the traditional business of providing revolving credit and the rest from fee income, said Mr Raymond Ang, the bank's managing director for cards and unsecured loans.

DBS launched a credit card yesterday in a tie-up with American Express that is targeted at frequent travellers.