The risks of credit loss for many Singapore banks will be limited even if an asset bubble emerged, said Standard & Poor’s Ratings Services.
The series of property price increases in the past few years, as well as the heavy exposure of Singapore banks to home loans, has raised concerns, including the risks of credit loss that banks face, the agency said.
However, Ivan Tan, credit analyst at Standard & Poor’s, said that “a high savings rate and low household debt support borrower repayment ability when collateral values fall.”
Standard & Poor’s noted that its views were largely based on borrower repayment ability, housing affordability rate, the government’s effort to curb the market, loan-to-value ratios and the increasing mortgage rates.
According to the agency, the financial loss risks of banks would rise if affordability rates decline, which could happen if household incomes decline or property prices continue its upward swing.
“We believe an unabated increase in property prices is unlikely, given the government’s past willingness to implement cooling measures,” said Mr. Tan.
The Singapore government lowered the home loan valuations to 80 percent in February, one of the measures it implemented to regulate the property market.
“We believe Singapore banks seldom extended loans of more than 80 per cent of valuation even before the loan ceiling was lowered,” said the report.
“Banks are beginning to price in higher risk premiums by raising home loan rates . . . The higher home loan rates will counterbalance the returns from property investments. This, in turn, helps reduce the likelihood of a speculative bubble and limit the risk of credit loss for banks.”