Though Singapore’s private home prices are expected to fall, banks can likely weather this slump. (Photo: Erwin Soo, Wikimedia Commons)
Singapore’s banks are strong enough to withstand a severe downturn in the country’s property market, according to Fitch Ratings.
“We believe Singapore’s private home prices will weaken further amid an influx of new homes, having declined 9.4 percent from their peak in September 2013; signs of an oversupplied market have emerged, with (the) vacancy rate of non-landed private homes rising to its 11-year high of 10.4 percent,” it said.
Despite this, the ratings agency believes the banks’ housing loan quality will be shielded by their disciplined underwriting standards, as well as healthy loan-loss reserve coverage of 113 percent as at end-June 2016.
The banks’ rating profiles will also be supported by their strong capitalisation, healthy profitability, steady funding and liquidity pools. In fact, its stress test analysis showed that as much as 24 percent may be shaved off the banks’ earnings, should property prices decline by 45 percent in a year.
Notably, Fitch’s harsher assumptions include a high housing-impaired-loan ratio of five percent (end-June 2016: 0.4 percent), with all defaulted housing loans having an 80 percent loan-to-value (LTV) ratio.
Comparatively, the average housing NPL ratio of the three local banks hit a high of 4.3 percent when private home prices plunged 45 percent from their peak in the aftermath of the 1997 — 1998 Asian financial crisis.
Fitch noted that the impact on banks will be cushioned by the property cooling measures rolled out from September 2009 to June 2013. It expects the government to ease some of the measures in case of a severe property price collapse.
Moreover, it does not see the increased foreign home ownership as a risk to the banks’ housing loan quality, as they remain cautious when lending to this segment. Singapore’s role as a global wealth management hub also implies that some of these acquisitions are long-term investments, hence reducing the risk of capital exodus.
Cheryl Marie Tay, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories, email cheryl@propertyguru.com.sg
