Housing loans rise to 34.5% of banks' portfolio

Published November 26, 2010

Housing loans rise to 34.5% of banks' portfolio


(SINGAPORE) Banks' exposure to housing loans has risen to 34.5 per cent, said the Monetary Authority of Singapore in its Financial Stability Review 2010 released yesterday.


Strong demand for homes has seen housing loan growth averaging some 20 per cent on a year-on-year basis in 2010, since hitting a trough in early 2009, it said.

While it is premature to assess the full impact of the measures announced at end-August 2010, outstanding housing loan growth has moderated slightly on both a year-on-year and quarter-on-quarter basis in September 2010.

Local bank chiefs said earlier this month that new mortgage applications have slumped 20-25 per cent since end-August.

The MAS said that given the strong growth since early 2009, housing loans now account for about 34.5 per cent of DBU (domestic banking unit) non-bank loans as at September 2010, slightly above the average of 32.1 per cent since 2004.

The bulk of housing loans (more than 70 per cent) are for owner-occupied residential properties, which tend to have a lower risk profile.

Negative equity housing loans represented less than one per cent of outstanding housing loans as at September 2010, down from a peak of close to 3 per cent in September 2009.

Similarly, the share of housing loans with loan-to-value above 80 per cent fell from a high of 17.3 per cent in September 2009 to 7.1 per cent as at September 2010.

The asset quality of housing loans remains robust with non-performing loan (NPL) ratios at well below one per cent as at Q3 2010.

The MAS also said that after 10 consecutive months of contraction, year-on-year growth of outstanding building and construction (B&C) loans turned positive in August 2010.

The banking system's Section 35 property exposures (which excludes home loans) stood at 15.8 per cent as at Q3 2010, well below the regulatory limit of 35 per cent.

Section 35 ratio looks at property exposures which include loans to property and non-property corporations, housing loans for investment purposes and other property-related debt instruments.

Lending to the B&C sector accounted for about 17 per cent of total DBU non-bank loans as at September 2010. The NPL ratio for B&C loans remained low through the downturn, almost reaching one per cent in Q2 2009, but moderating to well below one per cent as at September 2010.

The relatively robust asset quality of B&C loans is largely due to the recovery of the property market and the improving financial conditions of B&C firms.

B&C loans growth could rise moving forward owing to continued land sales and more construction of HDB Build-to-Order projects.

While B&C NPLs appear benign at this juncture, developments should be closely monitored in view of likely stronger loan growth and the risk that borrowing decisions may be distorted by assumptions of a sustained low interest rate environment, the MAS said.


Source:www.businesstimes.com.sg