BT : No risks seen for banks from real estate exposure

Business Times - 23 Jun 2010

No risks seen for banks from real estate exposure

This is because prices are rising in tandem with GDP growth: Moody's

By SIOW LI SEN

SINGAPORE banks' real estate exposure - while hefty - is not posing any risks as prices are rising in tandem with economic growth, said analysts from Moody's Investors Service.

Real estate exposure has always been an area of concern as it makes up 40-50 per cent of Singapore banks' exposure, said Christine Kuo, Moody's Singapore banking analyst.

'Having said that, we look at Singapore banks' housing portfolios and they are performing quite reasonably well up to now and the Singapore government has also put in a few measures to cool down the real estate market which seem to be working,' she said.

Ms Kuo also said Singapore property prices are growing in tandem with GDP growth.

'If you look at the charts, the property price line is moving parallel to the GDP growth lines ... while it has converged in Hong Kong,' she added.

The unabated rise in Singapore property prices this year, as well as in Hong Kong and Shanghai, has led to asset bubble concerns.

In April, the International Monetary Fund said real estate markets in East Asia are overheating and that capital inflows into Singapore and Hong Kong have fuelled price rises.

It noted that the proportion of real estate loans to total bank lending, which in Singapore was close to 80 per cent in Q4 2009, is the highest among markets highlighted in its report.

In the same month, DBS Group Holdings chief executive Piyush Gupta said asset bubbles have already formed in Asia but he did not think a price correction would precipitate a crisis.

'There are asset bubbles in Asia. That's true of Singapore property, of Hong Kong property, of Shanghai property - there's no question,' said Mr Gupta then.

But he added that when a correction comes, he did not think it would lead to a crash which would bring everything back down on its knees.

Singapore property prices only recently surpassed those of the 1996 peak, said Deborah Schuler, Moody's senior vice-president and group credit officer, Asia.

'Only this year we are starting to see the growth in housing prices versus the growth in GDP, sort of housing prices getting a bit ahead of GDP so there isn't the sign yet that we're dealing with a big bubble ... it doesn't look like we're terribly out of line with the growth in the economy,' said Ms Schuler.

The worry would be only if housing prices accelerated while GDP growth slowed, she added.

Both analysts were speaking to the media yesterday following a morning conference on the impact of the global financial crisis.

Earlier, Ms Schuler said Asian banks would do well when the Basel III amendments are implemented.

The implementation, which is expected at the end of 2012, will tighten capital and liquidity requirements of all banks.

'With the exception of Vietnam and Cambodia, our South-east Asian banking system outlooks are stable. NPLs (non-performing loans) have peaked at much lower levels than expected. Bank revenues are growing and should continue to do so as long as China's economic growth does not drop abruptly,' she said.

'The region's banks are well positioned to cope with the Basel III capital and liquidity requirements, thanks to their strong capital levels, traditional banking franchises and customer deposit funded loan portfolios.'

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