History shows that property-related loans have increased gradually since the property market boomed in 2005. According to the Monetary Authority of Singapore (MAS), property-linked loans were actually the main drivers of non-bank loan expansion for more than the past two years.
Now, the property market is experiencing some hardships again, and worries regarding banks’ exposure to the property sector started to emerge. MAS, however, disregarded these concerns, saying that the overall property exposure of banks hovers at only 18 percent, which is lower than the average limit of 35 percent.
The MAS said, “Most banks’ property exposures were well below the limit, with a few banks’ property exposures closer to the limit.”
On housing loans, MAS said that since home loans turn in single-digit non-performing (NPL) ratios, they have a very low profile risk and are excluded in the regulatory limit.
With regards to banks’ exposures on building and construction (B&C) companies, MAS said that exposures of banks to B&C firms are well-diversified in general, which means that no bank have exposures focusing on just one particular firm. MAS also mentioned that in September 2008, B&C sector loans totaled to 18 percent of total domestic banking unit (DBU) non-bank loans. MAS also expects that because of the economic recession and current corrections in the property market, there will be an increase in the NPL ratio of the B&C loans.
MAS assured that unlike in the US, there has been no mortgages securitization in Singapore and the banks’ mortgage exposures in the country are now in the form of direct loans. MAS believes that securitization of mortgages and turning it into complex products had contributed to the mispricing of risk and lax lending standards in the US.