Bloomberg Intelligence analysts Rena Kwok and Ken Foong see housing loan growth for Singapore banks to remain “flattish” y-o-y in FY2024. Kwok is a credit analyst while Foong is a property analyst.
“Singapore banks' mortgage growth may be flat or in low-single digits in 2024, with healthy pipelines offset by repayments amid high rates, cooling measures and cautious buyers given macroeconomic risks,” the analysts write in their report dated July 3.
They add that the local banks – DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank U11 (UOB) – are likely to maintain price discipline to defend their market share despite stiff competition as mortgages offer favourable risk-returns given their low risk-weighted-assets consumption for banks.
In FY2023, UOB’s mortgages grew by 1% y-o-y, lagging behind its local peers’ average of 4%.
Low possibility of housing loan defaults
In the second half of 2024, Kwok and Foong see “minimal” possibility of housing loan defaults due to resilient income and employment conditions, which have helped Singaporeans manage higher interest costs.
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In their view, the three banks are also unlikely to face credit losses from mortgages. The banks enjoy an average market share of over 20% in the sector, accounting for most of the industry’s mortgages. The low possibility of credit losses from mortgages point to tight risk controls, low overall loan-to-value (LTV) ratios of between 40% to 60%, as well as resilient household finances and “macroprudential” measures.
In the 1QFY2024 ended March, Singapore’s banking gross non-performing housing and bridging loans ratio was 0.29%. According to Credit Bureau Singapore, delinquencies were below 1% for borrowers aged 21 years and older as of March.
As of the 4QFY2023, DBS had the lowest average probability of mortgage default at 0.5% compared to its local peers.
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Singapore banks’ assets outshine Hong Kong peers
The asset quality of Singapore banks may outshine its peers in Hong Kong, say Kwok and banking analyst Francis Chan.
“Hong Kong banks' asset quality may weaken slowly into 2H due to lingering risks in commercial real estate (CRE) and luxury housing, keeping credit costs high for the banks we cover,” they write in a separate note dated July 4.
Singapore banks, on the other hand, look set to sustain its “robust” asset quality with “only a slight rise” to their gross nonperforming ratio and credit costs.
To this end, Singapore banks’ CRE loans in Hong Kong may remain solid due to their cautious lending to mostly top-rated developers and tight risk controls, say the analysts.
Meanwhile, they see that risks to the Hong Kong banks’ CRE loans could rise due to a weakening office market and prolonged high interest rates, despite collateral buffers and modest loan-to-value (LTV) ratios. The banks in question are The Hongkong & Shanghai Banking Corporation Limited (HSBC), Standard Chartered, Hang Seng Bank, Bank of East Asia and Bank of China Hong Kong.
As at 4.31pm, shares in DBS, OCBC and UOB are trading at $37.99, $15.13 and $32.60 respectively.
