Soaring Singapore property sends bank outlook to “negative”

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Singapore private residential property price index. Click to enlarge

On July 15, Moody’s Investors Service cut the outlook for Singapore’s banking sector from “stable” to “negative” in a rare move not seen since the 2007/08 financial crisis.

Moody’s cites the reason for the downward revisal of their outlook was due to rapid loan growth and rising property prices, which add to the risk of deterioration in credit quality.

The banks covered include the three largest: DBS Bank Ltd, the largest bank by assets in the region; Oversea-Chinese Banking Corporation (OCBC) Ltd; and United Overseas Bank Ltd., in addition to the OCBC’s fully owned subsidiary, Bank of Singapore.

In the report, Moody’s states that asset quality has potentially peaked in both local markets and across the regional markets of which these banks operate and that a turning point in the credit cycle is likely to lead to a worsening of non-performing loan ratios and higher credit costs.

“The operating environment for Singapore’s banking system has been favorable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region,” Gene Fang, a Moody’s Vice President and Senior Analyst, said in the report.

“With the potential risk of a turn in the interest rate cycle, we view strong asset inflation and credit growth trends as vulnerabilities, as this combination would likely cause credit costs to rise from their current low base.

“Our outlook is a directional, forward-looking view of the trend in the banks’ relative credit quality, which we consider as having potentially reached — or to be close to reaching — a cyclical peak,” Fang said in the report.

Home sales surged 24 per cent to 1,806 units in June from a revised 1,459 units in May, Singapore’s Urban Redevelopment Authority reported on its website on July 15, the highest since 2,793 units in March.

Singapore’s record home prices fueled by low interest rates have elevated concerns of a housing bubble thus prompting the government to expand a four-year campaign in January to try and curb speculation prices in the second-most expensive housing market in Asia.

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Reading Time: 2 minutes

Singapore private residential property price index. Click to enlarge

On July 15, Moody’s Investors Service cut the outlook for Singapore’s banking sector from “stable” to “negative” in a rare move not seen since the 2007/08 financial crisis.

Reading Time: 2 minutes

Untitled
Singapore private residential property price index. Click to enlarge

On July 15, Moody’s Investors Service cut the outlook for Singapore’s banking sector from “stable” to “negative” in a rare move not seen since the 2007/08 financial crisis.

Moody’s cites the reason for the downward revisal of their outlook was due to rapid loan growth and rising property prices, which add to the risk of deterioration in credit quality.

The banks covered include the three largest: DBS Bank Ltd, the largest bank by assets in the region; Oversea-Chinese Banking Corporation (OCBC) Ltd; and United Overseas Bank Ltd., in addition to the OCBC’s fully owned subsidiary, Bank of Singapore.

In the report, Moody’s states that asset quality has potentially peaked in both local markets and across the regional markets of which these banks operate and that a turning point in the credit cycle is likely to lead to a worsening of non-performing loan ratios and higher credit costs.

“The operating environment for Singapore’s banking system has been favorable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region,” Gene Fang, a Moody’s Vice President and Senior Analyst, said in the report.

“With the potential risk of a turn in the interest rate cycle, we view strong asset inflation and credit growth trends as vulnerabilities, as this combination would likely cause credit costs to rise from their current low base.

“Our outlook is a directional, forward-looking view of the trend in the banks’ relative credit quality, which we consider as having potentially reached — or to be close to reaching — a cyclical peak,” Fang said in the report.

Home sales surged 24 per cent to 1,806 units in June from a revised 1,459 units in May, Singapore’s Urban Redevelopment Authority reported on its website on July 15, the highest since 2,793 units in March.

Singapore’s record home prices fueled by low interest rates have elevated concerns of a housing bubble thus prompting the government to expand a four-year campaign in January to try and curb speculation prices in the second-most expensive housing market in Asia.

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