Local banks face risk exposure to home loans

Local banks face risk exposure to home loans
By Lois Calderon | Posted: 28 June 2011 2317 hrs
     
SINGAPORE : Home loans have been a major driver of the lending business for the three local banks, but they could also be a drag in the event of a downturn in the property market, according to global debt watcher Fitch Ratings.

Fitch Ratings estimates that home mortgages and construction-related loans account for 50 per cent, or half, of the three local banks' total loan books.

The latest figures from the Monetary Authority of Singapore showed that housing loans rose 22 per cent year-on-year to S$118 billion in April.

That is about a third of all bank lending here.

As a result, local banks may face stress if the property market starts to soften, as this may cause their balance sheets to take a hit.

Alfred Chan, director for financial institutions, Fitch Ratings, said: "Fifty per cent of Singapore bank loans are to the property sector in the form of home loans and construction loans.

"So in the event that prices were to moderate, given that prices are fairly high at where they are now, that could have an impact on the quality of those loans."

Fitch, however, points out that the government's move to cool the property market should help reduce that risk.

Those cooling measures will ensure that lenders will get to keep in their books only borrowers with good credit quality.

Mr Chan said: "From the top line point of view, it's going to be tighter. But from the risk point of view, the potential for delinquencies also tends to (be lowered). So from a net-net basis, it's generally positive for the banks."

Analysts said the government has already averted a build-up of a property bubble.

However, they added that the fallout from the Eurozone crisis could hit Singapore's property market.

Dr Chua Yang Liang, head of research & consultancy, Jones Lang LaSalle, said: "I don't think there's a bubble forming. It formed earlier on, but it has been held in control, given the policy measures.

"And going forward, I think as long as you keep the price movements stable, transaction volume steady, it should be quite sustainable."

He added: "The risk would largely come from external, downside risks - right now are, I would think, the European issues with the Greek economy, the sovereign risk conditions there that could potentially rock the financial market further. That may impact the property market here."

Other analysts said the risk exposure to home loans could be offset by the strong growth in business loans, which grew 24.3 per cent year-on-year to S$$193 billion in April.

Jones Lang LaSalle expects the rise in housing property prices to slow to a rate of between zero and 1.5 per cent for the rest of the year, or at a full-year average rate of 5 to 6 per cent - a much faster pace than in the first half of the year.

- CNA/al

- wong chee tat :)