Correction in Singapore’s property market may place modest pressure on the city-state’s banking system loan quality, Fitch Ratings said in a report Friday (30 January).
Despite this, the rating agency said local banks – DBS, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) – should be able to weather a significant rise in credit costs given their healthy loss-absorption buffers.
The ratings agency noted that in 2014, prices of residential properties in Singapore are down 5 to 8 percent compared to the previous year.
The report said “Fitch expects Singaporean banks’ potential losses from mortgages to be minimal due to relatively healthy household balance sheets and adequate collateralisation,” adding that the republic’s macro-prudential policies over the past few years included measures to strengthen mortgage underwriting practices at domestic banks.
Mortgage delinquencies remain extremely low in both Singapore and Hong Kong – standing at 0.36 percent and 0.02 percent respectively at end-September last year. “While we anticipate Singapore banks’ loan losses to rise as the property market continues to cool, Fitch expects the Monetary Authority of Singapore to remain vigilant for signs of stress.”
“The agency remains watchful of potential second-order effects of the housing slowdown, such as weaker private consumption and rising construction company defaults,” it added.