http://www.businesstimes.com.sg/arch...ybank-20140812

Published August 12, 2014

Little risk of home loans hitting local banks, says Maybank

Report comes amid sharp rise in housing non-performing loans at UOB in Q2

By Jamie Lee

[email protected] @JamieLeeBT


[SINGAPORE] Unlike the fabled three little pigs, the trio of local banks appear to have built houses of steel. The chance of a fallout via the banks' mortgage portfolios is slim, a Maybank report said yesterday, despite the sharp lift in housing non-performing loans (NPL) at UOB in the second quarter.

"Don't worry, not house of straws," said Maybank analyst Ng Wee Siang in a report yesterday.

Still, based on its stress test, taking factors such as a 30 per cent collapse in property prices, OCBC Bank's earnings would be hit the most of the three.

UOB recorded a lift in NPL from some housing loans in Singapore in the second quarter. This came from some weakness in payments from an isolated set of borrowers who had bought high-end properties for investment. UOB's NPL ratio was 1.2 per cent, unchanged from a year ago.

Rivals DBS and OCBC, however, reported no stresses in their housing portfolio. This suggests a lack of systemic risk, said Mr Ng, adding that the market has probably overreacted to UOB's housing slippage.

In periods of macroeconomic stresses between 2001 and 2004, Singapore's housing NPL ratio also stayed resolutely below 3 per cent.

Household assets are also less concentrated than before the Asian Financial Crisis, said Mr Ng, with other assets such as deposits, shares and securities, Central Provident Fund contributions and life insurance.

Maybank ran a stress test assuming the lenders' highest NPL ratio recorded during the Asian Financial Crisis, an 80 per cent loan-to-value for housing portfolios, and a 30 per cent correction in home prices.

Based on this, OCBC could see its profit hit by 14 per cent. Notably, OCBC had the highest record NPL ratio among the three at 9.8 per cent. DBS and UOB recorded a historical NPL ratio of 4 per cent and 4.8 per cent respectively.

OCBC's earnings impact is the highest compared to UOB's 8.7 per cent, and DBS's 5.7 per cent.

Maybank has a "buy" rating on DBS in a nod to the bank's biggest deposit base, and a "hold" on UOB for its weaker deposit franchise. The brokerage also has a "hold" on OCBC, reflecting risks from buying Wing Hang Bank.