http://www.straitstimes.com/archive/...risky-20141205

Bigger share of new home loans now less risky

Incidence of bad loans for high-end homes also set to diminish: Moody's

Published on Dec 5, 2014 1:03 AM

By Wong Wei Han


LEVELS of mortgage debt held by Singapore households are easing further, thanks to government property cooling measures, a new report has concluded.

Ratings agency Moody's also said in its report that the incidence of bad loans for high-end homes - a major source of recent concern - is also set to diminish.

Significantly, this means a positive credit outlook for local banks, the agency said.

In its report, Moody's cited the data in the Monetary Authority of Singapore's (MAS) financial stability report released last week.

It said that the share of new borrowers with a total debt servicing ratio (TDSR) below 40 per cent has improved from 37 per cent in the fourth quarter of last year to 41 per cent in the third quarter of this year.

The TDSR is the proportion of income that goes towards paying off debt such as mortgages.

Moody's said this means more households with housing loans - accounting for 74 per cent of total household liabilities - are falling below the government mandated 60 per cent limit for TDSR.

In another positive sign, the share of new mortgage loans with a high, 70 per cent to 80 per cent loan-to-value ratio has also dropped from 70 per cent to around 60 per cent.

"This is credit positive for Singapore banks because less risky mortgages will alleviate some of the negative pressure on banks' asset quality that arises from elevated household leverage and property prices," Moody's said.

Over the past year, OCBC Bank and United Overseas Bank have reported a gradual increase in bad housing loans, with non-performing mortgage loans rising from $447 million to $502 million in the third quarter at UOB.

OCBC also saw its housing non-performing loans jump from $253 million to $272 million in the same quarter.

"A key reason behind the mortgage quality's deterioration is the rise of delinquencies in high-end property mortgages, most of which originated before the tightening of credit writing," the agency's vice-president and senior credit officer Eugene Tarzimanov told The Straits Times.

"The deterioration of credit quality in this segment will continue into next year, but the rate will be milder as the peak of the stress has already occurred."

He said: "We expect overall housing loan delinquencies to continue to increase into 2015, but the pace will also be slower and will not exceed 1.5 per cent (of housing loans)."

He said that the more moderate situation is a direct result of the Government's property cooling measures, which have curbed bad loans while forcing the banks to tighten lending rules.

The MAS and the Urban Redevelopment Authority have introduced various property and loan curb measures since 2009 in a bid to cool the market.

Moody's view reflects the MAS' own assessment last week that "the banking system remains sound and is resilient to risks arising from the property market".

Stress tests also show that the local banking system can still meet the minimum 10 per cent requirement for capital adequacy ratios while the proportion of delinquent housing loans has stayed below 6 per cent, the central bank said. The proportion of holders with housing loans more than 30 days past due is less than 1 per cent.

But MAS has said that it is unwilling to ease the property cooling measures yet, as the prospect of higher interest rates remains a risk for households with heavy debt levels.

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