Published April 21, 2007

Banks unlikely to cut home loan rates

But they say they'll continue to watch rate movements and what rivals do


DESPITE a sharp fall in interbank lending rates this week, banks in Singapore are unlikely to cut their home loan rates drastically anytime soon.

Edmund Koh, head of regional consumer banking at DBS Bank - the biggest player in the local home loans market - said yesterday there is 'no fundamental reason' for interbank rates to fall further and no reason to cut lending rates.

'Our view is that the (interbank) rates will go through a bit of an up-and-down swing, but it's pretty low as it is,' he said. 'The market is flush with liquidity at this moment. But if you look at the number of projects that will consume some of this liquidity, I don't think the rates will continue to come down.'

On Wednesday, the benchmark three-month Singapore interbank offered rate (Sibor) fell to 2.56 per cent, the lowest since October 2005, prompting speculation banks could start cutting loan rates.

CIMB research head Song Seng Wun said the Sibor fall was a result of 'too much money' in the banking system. The latest estimates from the Monetary Authority of Singapore show total deposits grew 25 per cent year on year to $283.9 billion at end-February, while total loans grew just 8 per cent to $198.4 billion.

'I've never seen that kind of deposit growth before,' Mr Song said. The sharp stock-market correction at the end of February may have caused more liquidity to flow into the banking system as investors fled equities to cash while waiting to re-enter the stock market, he said.

Yesterday, there seemed little appetite for a home loan price war among banks that BT spoke to. All took a cautious stance, saying they will continue to watch rate movements and what their rivals do. An insider said banks are reluctant to start a fresh round of rate cuts, especially since the property market is still rising.

'We will not cut our rates just to gain market share,' said Mr Koh at DBS.

Gregory Chan, head of secured lending at OCBC Bank, said it is 'too soon' to predict home loan rate trends. Kevin Lam, head of loans at United Overseas Bank, said UOB is 'monitoring the market situation'.

Citibank business director Tan Chia Seng said: 'We will continue to review the market and competitive environment . . . we won't play the market share game.'

Standard Chartered Bank corporate affairs manager Jean Khong said the bank takes a 'long-term view' on mortgage rates. The heads of consumer banking at HSBC and Maybank, Wendy Lim and Helen Neo, said their banks will monitor the market closely.