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IAS: banks calm, but analyst says they’ll take a hit

Posted on 16 Sep 2009 | Comments Off

Banks here seem to have shrugged off the government’s announcement on Monday that the interest absorption scheme (IAS) will be banned with immediate effect, but analysts are less sanguine.

Lower home sales and the resulting slowdown in housing loans growth could hit the three local banks’ profits, analysts said. There could also be a ripple effect in the form of a drop-off in loans made to developers and builders.

Banks told BT that the government’s decision to disallow the IAS and the similar interest-only housing loans (IOL) with immediate effect will not hurt them too badly.

‘While the take-up rate for IAS is good, our normal progressive home loan packages are actually more attractive and popular with homebuyers,’ said United Overseas Bank’s (UOB) head of loans division Chia Siew Cheng. ‘These measures (the ban of IAS and IOL) are not likely to have a significant impact on the bank’s loan business as most customers have opted for the normal progressive loan scheme, which is more attractive.’

But Royal Bank of Scotland (RBS) analyst Trevor Kalcic expects the earnings of the three local banks to be reduced by around 0.5 per cent though a negative impact on both volumes and margins. Continue reading →

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Posted in Loan / Mortgage / Finance

Tagged Interest Absorption Scheme, Interest Only Loans, IOA, IOL, Singapore Banks

Good riddance to property froth

Posted on 16 Sep 2009 | Comments Off

THE property trade appears caught off-guard over the intervention measures to tamp down froth in real estate, before a bubble develops. Most developers and consultants put a brave face on the curbs, suggesting that elimination of the two partial mortgage-deferment plans would not interrupt market tempo too much. Their justification: Fewer buyers have gone for these types of loans as premiums charged by developers have been rising, by up to 5 or 6 per cent. But industry and URA sampling showed a quarter of purchasers in select launches chose interest absorption or interest-only loans. In any analyst’s book, a proportion of this size is a market mover. The Government is justified in stopping back-door market churning through the issue of these soft loan terms. Indeed, it should be alert to whatever newfangled payment variations the industry could dream up, if these work against orderly growth of the market.

A more insightful industry view of National Development Minister Mah Bow Tan’s announcement was that the measures were drastic relative to the market recovery, described by some as still tentative. Judgment must wait several months to see how the market will behave. But underlying this lament is the barest hint that, perhaps, developers had been pushing their luck, stoking the sellers’ market by raising launch and relaunch prices by Continue reading →