HOME sales here may be waning but local banks should be shielded from the worst effects of a property market decline, according to a brokerage report released yesterday.
Maybank Kim Eng research head Ng Wee Siang said in the note that anti-speculation measures and positive economic factors should help the local banks to shrug off any mortgage weakness they may face.
Anti-speculation measures, imposed as early as late 2009, helped to curb demand in the residential property market.
They included the imposition of a 50 per cent loan-to-value ratio on second housing loans for individuals and a 40 per cent one for their third and subsequent home loans.
The loan-to-value ratio indicates how much cash a buyer has to put down when buying a home, with higher out-of-pocket cash for a lower ratio.
“These anti-speculation measures should shield our banks from a sharp slowdown in the housing market, to a certain extent,” said Mr Ng.
Local banks could also get support from an expected modest 3 per cent growth in Singapore’s economy, which should keep employment high and stave off a scenario of runaway non-performing loans.
Property developers are now in better shape than before the onset of the 2008 global financial crisis, observed Mr Ng.
Financially stronger developers would imply a less urgent need for aggressive price cuts in their projects which could dampen market sentiment, he added.
Banks should also be able to benefit from a gradual and modest increase in interest rates, which will allow the market to digest the impact of a hike.
“This should protect their portfolio quality as interest rates rise,” Mr Ng said.
Maybank Kim Eng is projecting that the three- month Singapore Interbank Offered Rate (Sibor) will be unchanged at 0.4 per cent this year, before rising to 1 per cent by the end of next year.
The Sibor is the rate that banks lend to one another and is commonly used to set mortgage levels.
There had been concerns that banks’ profitability could be held back by weakness in their home loan books.
But Mr Ng noted that throughout the periods of recession here, such as during the 1998 Asian financial crisis and the 2003 severe acute respiratory syndrome crisis, Singapore banks’ housing non- performing loans ratio by and large stayed below 5 per cent.
The exception was OCBC Bank, which saw a peak housing non-performing loans ratio during the Asian financial crisis of 9.8 per cent.
Maybank Kim Eng has chosen DBS Bank as its top pick in the sector, with a possible 26.3 per cent upside in the target share price, followed by United Overseas Bank with a 9.8 per cent upside and OCBC with 3.4 per cent.
It is remaining cautious on OCBC, given the execution risks in its acquisition of Wing Hang Bank.