3 safety nets for Singapore banks amidst property market frailty

Authorities have been proactive.

It has been noted that property weakness has been noted to be a valid but modest concern for Singapore banks, and in line with this, it has also been observed that various safety nets have been put in place to address this fear.

According to a research note from Maybank Kim Eng, first, the authorities have taken proactive steps since end-2009 to curb residential-property speculation, tightening their measures in response to changing circumstances.

Second, strong employment should reduce the chances of runaway housing NPLs. Third, the strong financials of property developers this time around imply a lesser need for aggressive price cuts that could dampen market sentiment.

Lastly, a gradual and modest increase in interest rates should provide sufficient time for higher interest rates to work their way through the system.

Here's more from Maybank Kim Eng:

Proactive regulators. In our view, the regulators were ahead of the curve when they started to introduce property measures as early as end-2009.

These anti-speculation measures should shield our banks from a sharp slowdown in the housing market, to a certain extent.

The preemptive curbs on residential-property speculation include:

A fixed 50% LTV ratio for second housing loans for individuals with existing home loans. This further drops to 40% for their third and subsequent home loans. Figure 11 indicates a low industry housing LTV for loans disbursed from 1Q08 to 3Q13.

Tighter LTV limits also for non-individuals, fixed at 20%. By end-Jun 2014, the industry’s average LTV ratio for outstanding housing loans was 48.1%, according to MAS.