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Credit loss risks of S'pore banks from home loans limited: S&P
By Mok Fei Fei | Posted: 19 July 2010 1224 hrs
SINGAPORE: Ratings agency Standard & Poor's or S&P said the credit loss risks of Singapore banks from home loans is limited even if an asset bubble is to form.
In a report, S&P said its view is based on the reasonable level of housing affordability, sound borrower repayment ability and low loan-to-value ratios.
Also, it added that the government's measures to cool the market and mortgage rates turning upward all played a factor in its assessment.
Mortgages represent the single largest industry exposure for Singapore banks, at about 25 per cent of loan portfolios.
S&P notes that a high savings rate here and low household debt support borrower repayment ability when collateral values fall.
It added that an unabated increase in property prices is unlikely given the government's past willingness to implement cooling measures.
One of the measures implemented by the government this year is the lowering of the ceiling for home loans to 80 per cent of valuation.
S&P believes Singapore banks seldom extended loans of more than 80 per cent of valuation even before the loan ceiling was lowered.
It said that banks are also beginning to price in higher risk premiums by raising home loan rates
The higher home loan rates, said S&P, will in turn help to reduce the likelihood of a speculative bubble and limit the risk of credit loss for banks. - CNA/vm