Here's why Singapore banks can brave deluge of falling property prices

This is despite a possible 24% slash in banks’ earnings.

It seems like the exposure to the oil & gas sector is not the only problem Singapore banks have to face as the city-state's property market is on the rocks as well. But for analysts, the three big banking giants -- DBS Group, OCBC, and UOB are equipped to weather the storm of plunging property prices.

According to Fitch ratings agency, the said banks are strong enough to face a downturn as severe as the 45% dip in private-home prices triggered by the 1997-1998 Asian financial crisis.

The report said banks' housing-loan quality will be shielded by their disciplined underwriting standards, and healthy loan-loss reserve coverage of 113% at the end of June 2016.

"We believe Singapore's private-home prices will weaken further amid an influx of new homes, having declined 9.4% from their peak in September 2013; signs of an oversupplied market have emerged with vacancy rate of non-landed private homes rising to its 11-year high of 10.4%," the ratings agency said.

Based on their stress-test, as much as 24% could be shaved off banks' earnings should a 45% plunge in property prices happen.

This impact, Fitch explained, will be cushioned by the property-cooling measures introduced between September 2009 and June 2013; a severe property price collapse could prompt the regulators into reversing some of these measures.

"Singapore banks' rating profiles will also continue to be supported by their healthy profitability, steady funding and liquidity pools, and strong capitalisation," the report noted.