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Banks also hit by property clampdown

Posted on 17 Sep 2009 | Comments Off

So far the market seems to have taken in its stride the removal of the interest absorption scheme (IAS) for properties. The knee-jerk decline of 43 points by the STI on Monday was followed by a sharp rebound on Wednesday as broader economic recovery factors continue to dominate. But there is an impending overbuilding of residential property in Singapore. According to Leong Wai Ho,director and senior regional economist at Barclays Capital, some 62,000 units are in the pipeline between now and 2013. In the first eight months of this year, almost 12,000 units were taken up compared to just over 4,000 units for the whole of last year.

However sales were already slowing month on month even before the government’s latest measures. What is the impact of this inventory on corporate Singapore?

The initial impact could well be felt by the banks. Mortgages represented the only area of loan growth for the banks this year, up 6% year to date, versus a contraction of 0.1% for total loans. According to Trevor Kalcic, regional banking analyst at RBS Securities, it will reduce the sector’s future growth by around 0.5%, through a negative impact on both volumes and margins. Continue reading →

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Posted in Loan / Mortgage / Finance

Tagged IAS scheme, Interest Absorption Scheme, Singapore Banks, Singapore Loan, Singapore Property, Singapore Property Market

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 →