Banks’ loss risks from home loans ‘limited’

Source : Today – 20 Jul 2010

Ratings agency Standard and Poor’s (S&P) believes the credit loss risks of Singapore banks from home loans is limited even if an asset bubble is to form.

In a report, S&P said its view is based on the reasonable level of housing affordability, sound borrower repayment ability and low loan-to-value ratios here.

Also it added that the Government’s measures to cool the market, and mortgage rates turning upward, all played a factor in its assessment.

Mortgages represent the single largest industry exposure for Singapore banks, at about 25 per cent of loan portfolios.

S&P noted that a high savings rate here and low household debt support borrower repayment ability when collateral values fall.

“Singapore households have strong balance sheets, underpinned by a high savings rate, low debt, and low unemployment,” the report said.

The ratings agency added that an unabated increase in property prices is unlikely, given the government’s past willingness to implement cooling measures. Amongst which is the move to lower the ceiling for home loans to 80 per cent of valuation.

“We believe the government will continue to monitor the property market and will implement further cooling measures if necessary,” S&P said.

Still, S&P believes Singapore banks seldom extended loans of more than 80 per cent of valuation even before the loan ceiling was lowered.