Banks would benefit from the new set of measures announced by the Singapore government to stabilise property prices and promote greater financial prudence among homebuyers, said Moody’s Investors Service.
Singaporean banks will benefit over the medium term as their exposures to future property price shocks and highly leveraged customers will be minimised, said Christine Kuo, vice president-senior credit officer of the rating agency.
The measures announced last week would help stabilise bank earnings from a decrease in potential loan losses, added Ms. Kuo.
However, these benefits will be less apparent in the short term since credit costs on housing loans generally stay low until prices of properties begin falling. In addition, the interest income of banks could be negatively affected by a decrease in loan demand.
The measures include the imposition of a stamp duty on residential property buyers selling their property within the first three years of acquisition, up from one year.
Property buyers with outstanding housing loans are also required to raise their minimum cash down payments from 5 percent to 10 percent of the valuation when buying additional properties. These buyers will also see a reduction in loan-to-value (LTV) limits from 80 percent to 70 percent.
A strong real estate market is vital for the three big Singaporean banks: DBS Bank (Aa1 stable; B/Aa3 stable), Oversea-Chinese Banking Corp (Aa1 stable; B/Aa3 stable), and United Overseas Bank (Aa1 stable; B/Aa3 stable), said Ms. Kuo.
“All have significant exposures to the property market (52%-54%4 of total loans as of 30 June, the majority of which are to Singaporean borrowers) through their housing loans and lending to the construction and real estate sectors,” said Ms. Kuo.
“Bank of Singapore (Aa1 stable; C-/Baa1 stable), on the other hand, focuses on private banking and has little direct exposure to property. But it, too, will still benefit from a stable market as its business flow could fall if the net worth of its clients declines because of significant drops in property prices.”