http://www.businesstimes.com.sg/prem...fitch-20130116

Published January 16, 2013

Property curbs will boost banks' credit profile: Fitch

By Siow Li Sen


If the cooling measures don't work, Fitch's Mr Chan said the regulator has further room to manoeuvre.

THE property market cooling measures will further improve the credit profile of the local banks - which are already among the safest lenders in the world.

According to Fitch Ratings, the latest measures rolled out last week, including higher stamp duty and tighter conditions for mortgages, may curb the build- up of potential threats to the credit profile of Singapore banks.

These measures are part of a continuing policy response to the threat of a potential property bubble.

The authorities have supplemented a higher tax on residential property purchases by foreigners and companies with the introduction of a seller's tax on industrial property.

"This is important for the Singapore banks, as they hold close to half their credit portfolios in property-related loans," said Fitch yesterday.

Residential mortgages are a particularly large component, accounting for around 30 per cent of their loan books.

According to Fitch director Alfred Chan, the total property exposure, which includes loans to developers, is pretty high though it also reflects Singapore's high home ownership.

A large proportion of residential mortgages on banks' balance sheets is reportedly for owner-occupiers, rather than for investment purposes. The cooling measures are aimed particularly at speculative residential property investment, so mortgage delinquencies are unlikely to rise significantly beyond a gradual pace that is to be expected from a slower economy in the last two quarters.

Overall non-performing loans are at cyclical lows, nearer to one per cent, Mr Chan said.

"As interest rates are not used as a monetary policy tool, we believe the greater risk for a spike in delinquencies to be a sharp rise in unemployment - which appears unlikely in the near term," he added.

Still, Mr Chan expects some loans from the manufacturing and shipping sectors to get into trouble given the predicted slow- growth environment.

The Singapore economy grew a slower-than-expected 1.2 per cent last year and is officially expected to grow 1-3 per cent this year.

"Last year's profits held up quite well but I don't think it's sustainable," said Mr Chan.

The three local banks will post lower earnings growth this year in line with the slower economy, he said. "No one is talking about robust growth for Singapore banks."

Mr Chan is projecting that the return on assets (ROA) for the three local banks for 2013 will fall to 0.8 per cent from an expected one per cent for 2012. Up to Q3 2012, the ROA was 1.1 per cent.

The three banks - DBS, OCBC and United Overseas Bank - will report Q4 2012 results next month.

The new property market cooling measures - which tighten considerably the loan-to-value limits for individual borrowers and impose a low 20 per cent cap for companies - are expected to further underpin the banks' strong credit profile.

"These lending restrictions help underpin the credit profile of Singapore banks. Their sound balance sheets and diversified earnings support their ratings, which are among the highest globally," said Fitch.

"The prudent regulatory backdrop and fiscally strong sovereign are also contributing factors. We see no weakening of the banking sector, despite concerns over a possible domestic housing bubble."

And if the measures don't cool the housing market, Mr Chan said the regulator has further room to manoeuvre. Up to now, the measures have targeted the debt burden of buyers but the regulator has the flexibility to require banks to hold more capital for the mortgage business, he said.