S’pore’s property cooling measures will benefit banks

It cites reduced exposure to highly leveraged clients and future price shocks

RECENT rules to cool the property market could bring short-term pain but longer-term gain to banks in Singapore says Moody’s Investors Service.

The ratings agency said the measures will benefit Singapore banks over the medium term, by cutting exposure to highly leveraged customers and possible property price shocks.

‘In the short term, however, these benefits will be less obvious because credit costs on housing loans usually remain low until property prices start falling,’ it said.

Also, banks’ interest income could be hit by a drop in loan demand caused by the measures.

Since the measures came into effect, property buying sentiment has weakened somewhat, and at least one bank in Singapore has seen the number of home loan applications fall.

A healthy property sector is critical for DBS, OCBC Bank and United Overseas Bank, Moody’s said. They have ‘significant exposures to the property market (52-54 per cent of total loans as of June 30, the bulk of which are to Singaporean borrowers) through their housing loans and lending to the construction and real estate sectors’.

Bank of Singapore, which focuses on private banking, could also benefit from the measures. While the bank has little direct exposure to the property market, Moody’s believes that ‘its business flow could fall if the net worth of its clients declines because of significant drops in property prices’.

In a Sept 2 report, DBS Vickers said that the measures would have a ‘neutral to mildly negative’ impact on the local banks. They have granted loans with loan-to-value limits of 70-80 per cent, so the new limit is unlikely to affect mortgage loan momentum in a big way, it explained.

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