Booming property market to benefit Singapore’s 3 major banks

After fighting stresses from the struggling oil and gas sector last year, Singapore’s three largest banks – United Overseas Bank (UOB), Oversea-Chinese Banking Corp (OCBC) and DBS Group Holdings – are expected to gain from the booming property market, reported CNBC.

This comes as the increased buying activity in the city-state boosted demand for housing loans, which account for 15 to 20 percent of the said banks’ total loans, based on the estimates of Jeremy Teong, analyst at Phillip Securities Research.

In fact, data from Credit Bureau Singapore showed that mortgage loan applications increased by 20 percent quarter-on-quarter in Q1 2017 as private housing transaction grew to a near four-year high in Q1 2017.

“Given the significant weight of [the housing loans] segment, the Singapore banks will benefit from a stronger Singapore mortgage system loans growth,” said Teong.

However, the tight competition in the lending space could limit the margins of banks from the robust domestic property sector, noted Maybank Kim Eng analyst Ng Li Hiang.

“There is usually a two to three month lag between mortgage applications and mortgage disbursements … We envisage an improvement in housing loan growth in the next few quarters,” said Ng. “(But) banks are prepared to tighten pricing to attract new borrowers, potentially limiting the upside to earnings.”

And while banks may have difficulty matching the “remarkably strong” performance registered in the first quarter, which was buoyed by gains in trading and wealth management income, the relatively low comparison base from last year may help all three banks to post net profit growth in Q2 2017, said analysts.

This article was edited by Denise Djong.