Singapore banks at risk as property lending exposure intensifies: Fitch

The sector is also vulnerable to overseas loans.

Strategic risk is intensifying for many of Singapore’s banks, thanks high property lending exposure and continued efforts at overseas expansion.

According to a report by Fitch, there is a buildup of systemic risk due to banks’ property exposure, and the Monetary Authority of Singapore is expected to keep a close watch on this segment.

“A series of macro-prudential cooling measures have been introduced since 2009 to curb rising housing loans and property exposure, which were driven by low interest rates and rising household wealth. These measures, together with the banks' satisfactory underwriting standards, should serve to mitigate the buildup of systemic risk due to property exposure in the banking sector,” noted the report.

Fitch also cautioned against domestic banks’ increasing overseas expansion, noting that local banks have little capacity to compete with domestic banks in emerging markets.

According to Fitch, “Loan growth has been high in recent years and Fitch expects regional growth to gradually increase the banks' risk profiles, as operating and regulatory environments in many emerging markets are still developing and the Singapore banks have modest capacities to compete with more entrenched domestic banks in these countries. However, the banks have generally been disciplined in their offshore expansion thus far.”