BT : Impact of new measures on loans growth likely to be small

Business Times - 31 Aug 2010

REACTION TO PM LEE'S NATIONAL DAY RALLY SPEECH
Impact of new measures on loans growth likely to be small

Banks see problems in extra checks needed for home loan applications

By CONRAD TAN

(SINGAPORE) New government measures to cool the property market and curb speculation in the resale market for HDB flats could cause headaches for banks here due to the extra checks needed for home-loan applicants, but the impact on loans growth will likely be small, a check by BT shows.

'Banks will certainly run into problems for any pre-existing loans which may have been approved but not drawn down yet, and housing loans not registered at the credit bureau,' said Helen Neo, head of consumer banking at Maybank Singapore. 'Banks may have to request a declaration from customers to confirm that there are no such pre-existing loans.'

Effective yesterday, home buyers with outstanding home loans must pay more cash upfront for a new house, and they may borrow no more than 70 per cent of its value, down from 80 per cent.

Housing loans have been the biggest driver of loan growth for banks here throughout the economic downturn, and the recovery since.

Total housing loans grew 22 per cent over the year to end-June, to $101.1 billion - a third of all Singapore-dollar loans by banks here, Monetary Authority of Singapore data show. Including business loans to the building and construction sector, property-related loans made up $149.7 billion, or 50.5 per cent of all Sing-dollar bank loans outstanding at the end of June.

'I don't think you'll see a collapse in loan growth' due to the new measures, said a banking analyst, who declined to be named. 'Housing loan growth is more correlated to the completions of properties - that's when the loans are drawn down. We've seen record home sales in 2007, 2009 and so far this year; those would underpin completions in the medium term.'

But if home sales slow and banks compete more aggressively to lend on fewer home purchases, that could squeeze their loan margins and hurt profits, the analyst said. 'That's the uncertainty.'

The new rules could also be a problem for people who want to buy a new house to live in, before selling their existing home, if they are still paying off an earlier mortgage, Ms Neo said. Such buyers can no longer borrow more than 70 per cent of the value of the new home from banks, even if they intend to stay in it.

Maybank Singapore had $4.1 billion in housing loans at the end of June. Of those, 'less than three- quarters' were loans for more than 70 per cent of the property's value, a proportion that hasn't changed much over time, Ms Neo said. 'We focus mainly on owner-occupied properties, so there is minimal impact on our home loan portfolio.'

While lending standards by banks here are 'still prudent', there are signs that more housing loans are being made for over 70 per cent of the property's value, the government said yesterday.

At OCBC Bank, 'we have seen an increase in the number of loan applications' asking to borrow more than 70 per cent of the value of the property, said Phang Lah Hwa, head of consumer secured lending. Most of its home loan applications are for owner occupation, but 'we have seen an increase in the number of loan applicants for investment purposes compared to a year ago', she added. The bank is assessing the new measures and their overall impact on its home loan business, she said.

'The new measures are likely to affect HDB upgraders and investors who would have to commit higher cash amounts for their down payments' if they have outstanding home loans, a DBS Group spokesman said, adding that the bank has 'robust underwriting criteria' for its loans.

'There may be some near term impact on property sentiment. But in the long run, this is good for the market,' said Chia Siew Cheng, loans division head at United Overseas Bank.

The new rules could also mean it takes longer to process home loan applications. Banks must check with the Housing & Development Board - in addition to their usual checks on a borrower's credit record with Credit Bureau (Singapore) - to see if a home-loan applicant has a home loan outstanding.

'If HDB is willing to enrol with the Credit Bureau as a member, the checks can be made more efficient in the processing of applications,' Ms Neo said.

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