Singapore Local financial system will hold up

Singapore Local financial system will hold up

MAS says banks, insurers strong enough to weather global economic storm
By Francis Chan

SINGAPORE’S financial sector will take a beating as the global credit crisis unfolds but the innate strengths of the local system will keep it stable.
That was the assessment of the Monetary Authority of Singapore (MAS) yesterday when it released its annual Financial Stability Review.

In the review, MAS said it expects revenue at local banks to decline as bad loans rise - but it is confident the banks are strong enough to make it through.

‘The local banks would face these risks from a position of strength…Our assessment is that the banking and insurance sectors are resilient and should be able to weather the economic downturn and heightened market volatility.’

MAS also expects markets to continue to be volatile but said Singapore’s financial system should remain stable.

‘Singapore’s strong macro-economic fundamentals, sound financial system and the recent precautionary measures taken…should en- able the economy to ride through this financial turmoil.’

The Republic, like most of Asia, began this year in a fairly strong, resilient position, relatively unscathed by the looming financial and credit crisis in the United States and Europe, the MAS said.

However, the second half painted a vastly different picture.

It started with the brutal equity market fallout in September, after the fall of US investment bank Lehman Brothers and the near-collapse of US insurance giant American International Group (AIG). This triggered a global crisis of confidence leading to sharp falls in Asian growth prospects.

Plummeting Asian asset markets over the last quarter resulted in reduced economic growth prospects. This meant cuts in growth forecasts for all Asian countries, including Singapore, despite Asia having projected economic growth rates that were higher than other regions.

Still, the MAS pointed to positive developments on the global front.

It said that following a raft of policy measures worldwide, ’signs of thaw in money markets have emerged’. It also said that a ‘degree of calm has returned to asset markets internationally’ though further difficulties may emerge.

MAS said Singapore’s small but open economy, driven by export demand, saw its domestic equity market fall along with international declines.

But despite entering a technical recession in the third quarter, Singapore’s financial system and its Singapore dollar money market remain stable throughout.

On Oct 16, the Government guaranteed all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance firms and merchant banks licensed by the central bank. This is a precautionary measure to ensure banks here are not disadvantaged in retaining their deposit base.

In its review, MAS said it expects revenues at local banks to decline and their non-performing loans (NPL) ratios to rise on the back of the slowdown in the domestic economy and other markets where they have regional operations.

But MAS also pointed to the fact that all local banks have strong Tier 1 capital adequacy ratios - a financial buffer to protect financial institutions against unexpected events - averaging 11.3 per cent.

The central bank’s minimum ratio is 6 per cent for Tier 1 and the Bank of International Settlements’ recommendation is just 4 per cent.

MAS also said that despite NPL ratios at an all-time low of 1.4 per cent - some 10 percentage points below levels seen during the Asian financial crisis - local banks are all well-capitalised, with loan deposit ratios averaging 86 per cent.

Similarly, the local insurance sector is also well-capitalised and remains sound amid the financial turmoil.

The capital adequacy ratio of life insurers here averaged 240 per cent from the first to third quarters of 2008, while direct insurers’ ratio averaged 289 per cent, both well above the minimum regulatory requirement of 100 per cent.

However, the insurance industry was also affected by the ongoing crisis, generally due to concerns over AIG group’s exposure to other credit derivatives and sell-offs which affected its investment portfolios, and negative sentiments over investment-linked insurance products on the whole.

The economic downturn will also moderate demand for insurance policies but MAS said: ‘The strong solvency position of insurers will enable them to weather these headwinds.’

Source : Straits Times - 29 Nov 2008

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Singaporeans catch flights from south Thailand, neighbouring countries

Singaporeans catch flights from south Thailand, neighbouring countries

By Maria Almenoar, Nicholas Yong & Yeo Ghim Lay

SINGAPOREAN Sally Chua was having breakfast in her Bangkok hotel yesterday morning when she got word that, after three days, her company had finally arranged a back-door exit for her from the protest-wracked Thai capital.
The 38-year-old manager had all of five minutes to pack her bags and catch a bus bound for the seaside town of Pattaya, 140km away.

There, joined by dozens of other stranded foreign nationals, she boarded a charter plane to Kuala Lumpur, leaving behind a country paralysed by anti-government protests.

‘The whole situation was very refugee-like,’ said Ms Chua, who arrived in Singapore last night. ‘It’s good to be back after all the chaos.’

She is among dozens of Singaporeans who are trickling home in the wake of massive protests that forced Thai officials to close Bangkok’s two airports earlier this week.

The closures have thrown the city into chaos, marooning thousands and leaving travellers scrounging for ways out of the country.

Some Singaporeans like Ms Chua headed to Pattaya to catch outbound flights. Others have been forced further afield, travelling hundreds of kilometres overland into southern Thailand, Malaysia, Cambodia and even Vietnam.

A group of 55 Singaporeans, made up of SAF Yacht Club members and their families, are on their way back to Singapore. They are travelling in two buses that will take them to Hat Yai, and then through Malaysia back to Singapore. They are expected to arrive home today.

Meanwhile, airlines that have seen their Bangkok flights cancelled are adding trips to other Thai cities, including Phuket and Chiang Mai.

Singapore Airlines (SIA) is now operating out of Pattaya. A spokesman said the move is expected to relieve some of the pressure but the airport cannot accommodate all the stranded travellers.

Low-cost carrier Jetstar has started twice-daily flights from Pattaya. Its first plane was scheduled to land last night at around midnight.

SIA is running extra flights out of Phuket on its subsidiary SilkAir. It is also allowing passengers with Bangkok tickets to fly from the resort town and Chiang Mai.

Tiger Airways, which has had nine flights out of Bangkok cancelled so far, is scheduling extra flights out of Phuket to Singapore tonight and tomorrow night.

Its chief executive, Mr Tony Davis, said: ‘Until we get confirmation from the airport authorities in Thailand, there is very little any of the airlines can actually do other than be prepared to operate as soon as the airport re-opens for service.’

AirAsia said in a media release yesterday that it had provided an extra flight last night out of Pattaya to Kuala Lumpur and will have another one today.

Airlines advised passengers to check their respective websites for updates or to call their hotline numbers.

Source : Straits Times - 29 Nov 2008

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All Singaporeans share in the grief: Jaya

All Singaporeans share in the grief: Jaya

Acting PM expresses Government’s sadness at the death of hostage

Ms Lo Hwei Yen, 28, was taken hostage in Mumbai and the MFA confirmed her death at 9.35pm Singapore time yesterday.

ACTING Prime Minister S. Jayakumar said last night that all Singaporeans shared in the grief of the family of lawyer Lo Hwei Yen, 28, who was killed in Mumbai.
In a statement expressing the Singapore Government’s sadness at her death in the terror attacks in the Indian city, he said: ‘The loss of any life to terrorism is sad, but the loss of a fellow Singaporean is a pain more keenly and more closely felt by every Singaporean.

‘I know that all Singaporeans feel deeply for the family, and our hearts go out to them in their time of sorrow and grief.’

He said that Ministry of Foreign Affairs (MFA) officials have been with the victim’s family in Singapore, and on the ground in Mumbai, since they first learnt that Ms Lo had been taken hostage.

The ministry issued a statement saying it was deeply saddened by the death of Ms Lo, a lawyer married to Mr Michael Puhaindran.

MFA said its officials in Mumbai confirmed only at 9.35pm Singapore time yesterday that she was among the dead.

‘A positive identification was made by the husband, accompanied by our High Commissioner,’ it said.

‘We would like to convey our sincere condolences to the family of Ms Lo Hwei Yen. This is a tragedy for all Singaporeans.

‘We have been in touch with her father-in-law and one of her aunts to convey this tragic news. Our officials in Mumbai are currently with her husband and another aunt.’

It said that the ministry and officials of the Singapore mission in Mumbai would assist the family.

‘We wish this tragedy had not occurred,’ it said. ‘MFA is currently assisting the family and will ensure the safe return of the body once the Indian authorities release the body.’

Extending sympathies to the families of other hostages killed in Mumbai, the ministry said: ‘Singapore strongly condemns the Mumbai terrorist acts and reiterates its commitment to work closely with the international community in combating terrorism.’

In his statement, Professor Jayakumar also said the tragedy served as a reminder to Singaporeans that ‘terrorism is a threat that spares no one, nowhere’.

‘This tragic event underscores the imperative for all of us to be constantly vigilant and the need for the international community to band together to combat this threat,’ he said.

Mr Pasuni Maulan, the chairman of the Tentera Di-Raja Mosque, also expressed sympathy to the family of Ms Lo and condemned the attacks in Mumbai.

‘I am very sorry to hear about the death of Ms Lo and my heart goes out to her family,’ he said last night.

‘All Singaporeans, regardless of race and background, feel the pain of this senseless act of violence.

‘The law of the jungle adopted by the extremists must be condemned by all mankind.’

Source : Straits Times - 29 Nov 2008

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Commandos wipe out attackers and free hostages -MUMBAI

Commandos wipe out attackers and free hostages -MUMBAI

By Ravi Velloor, South Asia Bureau Chief

Indian soldiers preparing to use a grenade launcher as part of the final assault on gunmen inside the Taj yesterday. The operation was successful and the hotel cleared. — PHOTO: ASSOCIATED PRESS

MUMBAI: Indian commandos trained for urban warfare mopped up the last holdouts in the deadly terrorist strikes that rocked Mumbai, an outrage that has slammed this most vibrant of cities to the ropes and raised fears of another confrontation with Pakistan.
A Singaporean woman’s body was among about 40 others recovered yesterday, raising the death toll to more than 140.

That toll may yet rise as about 280 people have been injured, some seriously.

Among those who walked out alive were Indonesians, Filipinos and Malaysians. A Singaporean bank officer and his wife also escaped on Thursday after taking refuge for 14 hours in a broom cupboard at the Oberoi-Trident hotel.

Some 140 other guests at the Oberoi were freed after two militants were chased down and killed. A few kilometres away, the Taj Mahal Hotel was cleared.

Last night, commandos emerged from Nariman House with guns pointed upwards, indicating closure of operations at the last place where hostages were being held.

Earlier in the day, Mi-8 choppers from the Indian Air Force had dropped commandos who rappelled down to the roof and sides of the building. Later, police entered the building, which houses a Jewish place of worship.

They found five bodies, believed to be of hostages. The gunmen had been said to be holding as many as six Israelis.

Under pressure from the ceaseless media monitoring, the Indian government may have used overwhelming force to show results, analysts said. That may have contributed to the loss of several innocent lives.

The scale of the outrage and the meticulousness with which it was planned threatened to sour relations with Pakistan, with investigating officials pointing to links connecting the terrorists with people in that country’s main port of Karachi. Among the clues police cited were five calls to Karachi made from a satellite phone carried by one of the terrorists.

New Delhi says fugitive Indian underworld figure Dawood Ibrahim, who is from Mumbai, lives in the port city under Pakistani intelligence protection. The home minister of Maharashtra state, of which Mumbai is the capital, said the lone terrorist captured alive was a Pakistani national.

‘The way the terrorists came ashore and fanned out suggests training similar to what we give our Navy Seal commandos,’ said a senior security official in New Delhi.

However, marine commandos found a Mauritius ID and multiple currencies on the terrorists, including seven credit cards from Indian banks.

They also found clips of AK-47 bullets, ammunition, plastic explosives and unexploded grenades with Chinese markings. The men also came across packets of dry fruit, a tactic used by trained men to subsist on rations that weigh little.

‘An AK series gun is not a weapon that an untrained man can use,’ said the head of the Marine Commando assault unit, his face and head covered in black to avoid identification.

The Indian government called on Pakistan to send the chief of its Inter-Services Intelligence (ISI) to New Delhi to assist the investigation.

‘Preliminary evidence suggests that some elements from Pakistan are involved in this,’ said Indian Foreign Minister Pranab Mukherjee.

Pakistan responded positively to the request and said it would send Lieutenant-General Ahmed Shujaa Pasha at ‘the earliest’.

‘Initially, Indian Prime Minister Manmohan Singh made a request to our Prime Minister that he should send the ISI chief to India to help in ongoing investigations and further intelligence sharing,’ said Mr Zahid Bashir, spokesman for Pakistan Premier Yousuf Raza Gilani.

‘The Prime Minister of Pakistan responded positively and said both governments need to work out modalities for the early arrival of the ISI chief.’

Mumbai residents meanwhile have been shaken by three days of violence.

South Mumbai is torn by sounds of ambulances rushing around with sirens blazing. Bollywood superstar Amitabh Bachchan, known to silence his foes with a single stare in his heyday, said yesterday that he had done something he had never done before: sleep with a loaded gun under his pillow.

Source : Straits Times - 29 Nov 2008

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Singapore Jurong East ‘white’ site joins reserve list

Singapore Jurong East ‘white’ site joins reserve list

But market watchers say that like the Bukit Chermin site, it is not likely to be triggered anytime soon

By KALPANA RASHIWALA

FOR the second day running, the Urban Redevelopment Authority has made available for application a reserve list site in an attractive location, despite the inopportune timing.

Its latest offering is a 1.9-hectare ‘white’ site next to Jurong East MRT Station. At least 30 per cent of the 1.15 million square foot maximum gross floor area must be set aside for office use and the rest for additional office use or other uses permitted under the white site zoning such as commercial (like retail and entertainment), hotel and residential uses.

The 99-year leasehold plot is the first sale site being offered in URA’s Jurong Gateway precinct since Singapore’s planning authority unveiled plans for the Jurong Lake District earlier this year.

On Thursday, URA went ahead with the scheduled release of a plum hotel site at Bukit Chermin on hilly terrain overlooking the coastline.

Market watchers yesterday gave the Jurong East site the same verdict that they did for the Bukit Chermin site - it’s not likely to be triggered anytime soon.

‘Given the current uncertain business environment, it’s unlikely there will be any interest in the Jurong East site. There’s also difficulty in getting funding. Investors would rather go for completed, income-generating assets that can give immediate returns than to embark on a fresh development with higher risks,’ DTZ executive director Ong Choon Fah said.

Market watchers also note that substantial office supply is expected to be completed from 2010.

Colliers International director Tay Huey Ying: ‘It’s unlikely the Jurong East site will be triggered for launch until the market picks up significantly. The land parcel is quite attractively located next to an MRT station and in an area within a growth centre.’

URA said: ‘Given its strategic location, it is vital that the proposed development on the first sale site in Jurong Gateway is a well-designed landmark development with appropriate quality.

‘Hence, the design of the proposed development will be reviewed by a Design Advisory Panel (DAP), chaired by URA.

‘The DAP will work with and guide the development team in the design of the development after the tender has been awarded.’

Reserve list sites are launched for tender only upon successful application by a developer with an undertaking of a minimum bid acceptable to the state.

The tender for the Jurong East site will be awarded on the basis of land price.

Source : Business Times - 29 Nov 2008

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Explosions as Indian commandos raid hotels Mumbai

Explosions as Indian commandos raid hotels Mumbai

More than 120 people have been killed and 284 injured so far; dead include 22 foreigners

(Mumbai)

A FRESH battle raged at the luxury Taj Mahal hotel yesterday as commandos fired grenades at that Mumbai landmark while other forces ended a siege at another five-star hotel.

Meanwhile, Indian commandos emerged from a besieged Jewish centre with rifles raised in an apparent sign of victory after a day-long siege that saw a team rappel from helicopters and a series of explosions and fire rock the building and blow gaping holes in the wall.

The fighting comes two days after an estimated 25 men armed with assault rifles and grenades - at least some of whom arrived by sea - had fanned out across Mumbai on Wednesday night to attack 10 sites popular with tourists and businessmen, including the city’s top two luxury hotels.

Officials said more than 120 people are dead and 284 injured. The death toll includes at least 22 foreigners, including a Singaporean, five Israelis, three Germans, two Americans, two French, a Japanese, a Canadian, a Briton and an Australian.

After hours of intermittent gunfire and explosions at the elegant Taj Mahal hotel yesterday, the battle heated up at dusk when Indian forces began launching grenades at the hotel, where at least one militant was believed to be holed up inside a ballroom.

Commandos had killed the two last gunmen inside the nearby Oberoi earlier in the day. About 200 people - including a man clutching a baby - had been evacuated, while 24 bodies were found, said officials.

At the Chabad Lubavitch Jewish centre site, Indian troops left the building to cheers from the crowd nearly 12 hours after the battle began, but five hostages were dead inside. Moshe Holtzberg, a two-year-old who was smuggled out of the centre by an employee, is now with his grandparents, though the fate of his parents is still unknown. The unnamed employee’s attempt to save the toddler is a tale has echoed across Mumbai where, time after time, workers have emerged as the people who shielded, hid or evacuated their wealthy guests from militants.

Prashant Mangeshikar, for one, as well as his wife and daughter, would be dead if not for a Taj Hotel maintenance staff member. He was one of several guests who were being ushered to hotel rooms to hide, when they were confronted by a militant who opened fire. ‘The man in front of my wife shielded us . . . He took the bullets,’ he said.

A little-known Islamist group, the Deccan Mujahedeen, claimed responsibility for the attacks.

‘We came up against highly motivated terrorists,’ Vice-Admiral JS Bedi, whose commandos led the assault against the militants, said in televised comments. He showed pictures of recovered hand grenades, tear gas shells and AK-47 ammunition.

Officials said 14 police officers and nine militants had been killed. Nine suspects were taken into custody, at least one of whom is a Pakistani national, the interior minister of Maharashtra state R Patil told reporters.

India pointed a finger yesterday at Pakistani-linked ‘elements’ for the deadly attacks, raising the prospect of a breakdown in the nuclear-armed rivals’ peace efforts.

But Islamabad said that it was not to blame, and, in an unprecedented step, agreed to let the head of the Pakistani military’s Inter Services Intelligence (ISI) agency go to India to share information.

‘I am saying it again, that we have nothing to do with the attacks in Mumbai,’ Pakistan Prime Minister Yousuf Raza Gilani announced to reporters yesterday evening. — Reuters, AP, AFP

Source : Business Times - 29 Nov 2008

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Singapore faces years of slow growth after recession: PM

Singapore faces years of slow growth after recession: PM

Recovery will not depend on its own measures but state of US economy

By LEE U-WEN

SANTIAGO, CHILE

CRISIS CONTROL
PM Lee speaking to business leaders at the ENADE fair in Santiago, Chile; the current financial crisis involves the entire world and the magnitude is the worst in more than 60 years, he told reporters
SINGAPORE is likely to face several several years of slow growth after the current recession, Prime Minister Lee Hsien Loong said yesterday.

Painting this glum picture amid the global financial crisis, he said that recovery for Singapore will not depend on its own measures but the state of the US economy.

Mr Lee explained how the current crisis differs from others that he has experienced - first in 1985, when Singapore’s soaring costs required tough medicine; and then in 1997 when the Asian financial crisis hit.

This time around, the crisis involves the entire world and the magnitude is the worst in more than 60 years, he told Singapore reporters in the Chilean capital of Santiago as he wrapped up a week-long trip to South America.

‘Imbalances have been built up over the past five to seven years - the balance of payments; deficits; the surpluses in Asia; the budget deficits in America; the borrowing and excessive consumption by US consumers,’ he said.

‘To get back to growth, we cannot go back to where we were before, which is - Asians lend money to Americans, Americans borrow money to spend. So how do we get back to the model where savings and consumption are in balance?’

Now that the American consumer is not spending as ‘extravagantly and profligately’ as before, those from other countries - be it China, India, or from Europe - will have to ‘take the slack’, said Mr Lee.

With many Singaporeans keenly awaiting the coming Budget, which has been brought forward a month to January, Mr Lee said that it is important to manage people’s expectations realistically.

He made clear why the government is not keen to reduce the Goods and Services Tax. What will be more effective, he said, is to maintain the current 7 per cent rate and use the revenue in a targeted way, such as by helping businesses feeling the impact of the crisis.

‘You cannot look at individual revenue items, but the overall package,’ he said. ‘Where is the government getting its money, where is it spending the money? The balance - are we putting assistance into the system, or are we running a big surplus during a time when the economy cannot afford to run a surplus?’

Mr Lee also ruled out any cuts to the CPF scheme ‘in the immediate term’ as there were more practical ways to reduce business costs. Slashing the CPF rate now would send too pessimistic a signal, he said. ‘Then everybody takes fright and shrinks back. It would make things even gloomier.’

He recalled how, back in 1985, then-prime minister Lee Kuan Yew explained in his National Day Rally speech why Singaporeans had to ‘take the medicine’ to combat the downturn at that time. This included a hefty 15 percentage point cut in the employers’ share of the CPF as a crucial way to bring down business operating costs.

Singapore’s cost structure that year was way out of line with those of other Asian economies such as Korea, Hong Kong and Taiwan, said Mr Lee. ‘That year in 1985, there were no goodies. Not one. People listened carefully, they understood the issues. The medicine worked.’

In the coming Budget, there will be ‘a bit more sugar coating’ on the pill, he said. There will be assistance for needy families, and the middle-income group - commonly known as the ’sandwich class’ - will not be neglected.

Regardless of how the crisis pans out, the government will not lose sight of the over-riding priority - keeping people in jobs, red

Singapore MAS eased liquidity stresses

Singapore MAS eased liquidity stresses

THE Monetary Authority of Singapore (MAS) took various steps in recent months to maintain calm in interbank markets here as money markets worldwide strained to cope with the unfolding financial crisis.

It injected extra funds into Singapore’s banking system at the end of September after Lehman Brothers collapsed, and set up a US$30 billion swap line with the US Federal Reserve in October.

As early as July, MAS had expanded its standing facility to all banks that use its electronic payment system MEPS+, so they could borrow directly from the central bank. Previously, only primary-dealer banks, which act as market-makers for Singapore government bonds and treasury bills, had access to the facility.

The measures adopted have been ‘effective in dealing with and anticipating tight liquidity conditions’, MAS said in its Financial Stability Review. ‘Markets have generally been orderly with sufficient liquidity maintained in the banking system.’ It said it ’stands ready to inject additional liquidity’ as required.

MAS said that as money markets worldwide came under tremendous stress at the end of the third quarter, it raised the level of liquidity in the banking system here to more than 3.5 per cent of total liabilities, compared with the usual 3.1-3.3 per cent.

The move was meant to buffer the risk of banks scrambling for funds to meet their needs at the end of the quarter, as well as a sharp increase in demand for US dollars amid growing uncertainty in credit markets.

Source : Business Times - 29 Nov 2008

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Local banks, insurers can weather slowdown

Local banks, insurers can weather slowdown

By CONRAD TAN

BANKS and insurers here are well-capitalised and will remain sound even if bad loans reach levels last seen during the Asian financial crisis a decade ago, the Monetary Authority of Singapore said yesterday.

FIRM FOOTING
Foreign direct investments have held up well and equity outflows have been limited so far, says MAS
‘Our assessment is that the banking and insurance sectors are resilient and should be able to weather the economic downturn and heightened market volatility,’ MAS said in its Financial Stability Review published yesterday.

Still, the Singapore economy ‘has slowed down sharply and is likely to weaken further in the period ahead with adverse implications for the financial system’, it said.

Bank earnings are likely to fall while bad loans will rise as the economic recession deepens, while the volatility in financial markets will also affect the valuation of assets on the books of insurers and banks, it said.

‘However, we do not expect these to be destabilising.’

Bank lending growth here will slow in the months ahead as business sentiment weakens, demand for loans falls, and banks themselves turn more cautious, MAS said.

But local banks face the risks ahead ‘from a position of strength’, MAS said.

‘They have strong capital, with the Tier 1 capital ratio averaging 11.3 per cent, well above the MAS’s minimum requirement of 6 per cent.’

The proportion of non-performing loans or NPLs on their books is at an all-time low of 1.4 per cent compared to more than 11 per cent during the Asian financial crisis, MAS added.

‘From our estimates, even if NPLs were to reach the elevated levels seen during the Asian financial crisis, the local banks would remain well-capitalised and sound.’

The insurance sector, too, ‘is well-capitalised and has remained resilient to the ongoing financial turmoil’, MAS said.

Both life insurers and general insurers maintained capital adequacy ratios of well over 200 per cent for the first nine months of the year, compared to the minimum regulatory requirement of 100 per cent.

Insurers are likely to face slower demand for insurance policies as the economy slows, and their investment portfolios are likely to be affected if volatility persists in financial markets, MAS said.

Still, ‘the strong solvency position of insurers will enable them to weather these headwinds’.

Overall, despite the difficult conditions ahead for banks and insurers, ‘we do not expect these challenges to be severe or to significantly undermine the soundness of Singapore’s financial system’, MAS said.

MAS also said that a broad range of measures it looked at, including the proportion of borrowing by governments, businesses and households, suggest that most financial systems across Asia are in better shape to weather the current downturn than they were at the start of the Asian financial crisis.

The likelihood of large scale capital outflows from the region - seen a decade ago, as foreign investors withdrew funds from Asia on a massive scale - is low for now, MAS said.

One reason is that the growth outlook for Asia ‘remains positive relative to other regions’, it added. ‘Foreign direct investments have held up well and equity outflows have been limited so far, indicating that investor confidence, even if less strong, is still intact.’

But it warned that Asia remains vulnerable to a sharper than expected slowdown in consumption and investment activity worldwide, and a weakening of domestic demand within the region.

Source : Business Times - 29 Nov 2008

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Property exposure of banks well below limit

Property exposure of banks well below limit

MAS does not expect sliding real estate market to affect lenders as their loan portfolios are generally well diversified

By SIOW LI SEN

EVER since the market gathered steam in 2005, property-related loans have grown steadily. In fact, they were the key drivers of non-bank loan growth over the past two years, according to the Monetary Authority of Singapore (MAS), which released its Financial Stability Review yesterday.

Now, as a chill settles over the market again, concerns are being voiced over banks’ exposure to the property sector. Brushing aside these worries, the MAS said that the overall property exposure of banks stands at just 18 per cent, well below the regulatory limit of 35 per cent. Of course, some banks may be closer to the threshold. ‘Most banks’ property exposures were well below the limit, with a few banks’ property exposures closer to the limit,’ MAS said.

Home loans are not included in the regulatory limit as they are typically very low risk. They accounted for 28.4 per cent of non-bank loans.

Banks’ exposures to building and construction (B&C) firms are generally well-diversified with no bank having exposures concentrated in any particular property firm, it said. Lending to the B&C sector accounted for 18 per cent of total domestic banking unit (DBU) non-bank loans in September 2008. The asset quality of B&C loans has remained high, with the non-performing loan (NPL) ratio remaining low at less than one per cent.

‘Going forward, the NPL ratio of B&C loans is expected to rise, given the economic downturn and ongoing corrections in the property market,’ MAS said.

However, it does not expect this to affect the financial soundness of the banks as their loan portfolios are generally well diversified.

MAS said that the leverage ratio of the property sector has remained at almost the same level as before the Asian financial crisis, at around 60-80 per cent.

‘Generally, the small property developers are more highly geared than the large property developers, with the small developers’ debt to equity ratio at 76 per cent, compared to the large developers’ 62 per cent in Q2 2008,’ it said.

While there has been a substantial moderation in the interest coverage ratio since Q2 2007 for both small and large property developers, their earnings are still more than adequate to cover their interest liabilities in Q2 2008 with earnings at about 8.6 times of interest expense, it said.

On housing loans, the MAS said that they ‘typically turn in low single-digit NPL ratios and have a low risk profile with 75 per cent of housing loans accounted by owner-occupied residential properties’.

In addition, Singapore banks’ mortgage exposures are currently in the form of direct loans. Unlike in the US, there has been no securitisation of mortgages and repackaging into complex products, which had contributed to lax lending standards and the mispricing of risk, it said.

It added that the growth of property-related loans has tapered off recently, reflecting falling home demand and property transactions.

Source : Business Times - 29 Nov 2008

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