Moody’s cuts Outlook on Singapore Banks

  • Posted by admin
  • 22 August 2013
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For Singapore Home Owners

Moody, a credit agency recently downgraded the outlook of Singapore’s three major banks from stable to negative. This was done due to fears that there might be an increase in borrowing costs. The move was also initiated due to the mounting household debt in the city state.

According to the Urban Redevelopment Authority website, home sales rose at a rate of 24% to more than 1,800 last month. This is a significant increase from the 1,459 units in May. According to Moody, the rising prices of properties in the country and rapid rate of loans puts credit quality at risk.

The domestic household industry increased 77.2% of GDP from March 2013. This is a significant increase from the 64.4% of GDP that was recorded at the end of 2007. The prices of private real estate also grew during the same time. The interest rates in Singapore could be affected due to a tightening of US monetary policy. The impact may also affect several other countries where Singapore banks are established as argued by Moody.  According to Gene Fang, a senior analyst from Moody -

“The operating environment for Singapore’s banking system has been favorable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region. With the potential risk of a turn in the interest rate cycle, we view strong asset inflation and credit growth trends as vulnerabilities, as this combination would likely cause credit costs to rise from their current low base.”

Another quote from the associate director of at CBRE Research, Desmond Sim, “Sales for the next half of the year will take a breather, largely because the number of new launches will fall slightly in line with new projects developers might plan to sell,… Fewer launches, combined with the full force of the January 2013 property measures and the latest credit financing rules, will put a dent on sales volume.”

Will there be a Singapore Housing Bubble

The US housing bubble in 2009 shook the very foundations of the US economy and made it go into recession. Low interest rates and record home prices made experts raise concern over a potential market crash from the second most expensive housing market in Asia. This is what prompted the government to widen a four year campaign in January.

The country has been trying to control prices since 2009. This is when the government initiated curbs (the seventh round) in more than four years. This included increasing stamp duties for homebuyers from 5 to 7 percentage points.

The downgrade was a surprise especially since Moody’s investor service had claimed that the state of Singapore banks will remain stable for the 12-18 months. This prediction was made almost half a year ago. However the outlook of Singapore banks was downgraded after half a year was up.

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