Singapore banks armed to deal with softening property market

Thanks partly to early and preemptive regulation.

It has been observed that Singapore's property market is not in prime condition currently, and that it could possibly even wrose, as new supply could inundate the market as population growth slows and interest rates rise.

According to a research note from Maybank Kim Eng, however, while a softening property market would be generally negative for banks, it expects these institutions to be well-equipped for the market's condition.

The report noted that an NPL ratio below 5% could be seen, in the worst case. It said that even during 1998-2003 when Singapore and ASEAN were buffeted by major economic setbacks, banks’ housing NPL ratios stayed below 5%.

Here's more from Maybank Kim Eng:

Early and preemptive regulation. The regulators having been curbing property speculation as early as end-2009.

The LTV ratio for buyers with one or more outstanding housing loans was capped at 80% from Feb 2010, before it was lowered to 70% in Aug 2010 and 60% in Jan 2011.

In Jan 2013, the ratio for second housing loans to individuals with existing home loans was capped at 50%. In our view, the regulators are likely to fine-tune their measures, depending on the direction and momentum of the property market.

Manageable earnings impact. At a 9.8% housing NPL ratio (currently 0.5%), which marked OCBC’s peak during the Asian financial crisis, UOB should be the most vulnerable, with a 17.8% EPS risk.

In our simulation, OCBC would be next, with a 14.0% risk and DBS, with 13.9%.