5 Singapore banks most affected by property tightening measures

DBS named least defensive.

Barclays Capital have analysed banks’ mortgage risk weightings and the capital positions amids numerous rounds of property cooling measures over concerns of the property market heating.

It found that DBS (UW) among the local Singapore banks as most affected by property tightening measures due to its low mortgage risk weighting of 6% under the internal-risk based approach.

In Hong Kong, it's Hang Seng Bank with 5% risk mortgage risk weighting.

Here's more from Barclays Capital:

We believe that 1) mortgage rates will rise independent of US interest rate hikes due to tightening system liquidity in Singapore and falling returns on risk weighted assets (RoRWA) due to regulatory tightening measures in Hong Kong and 2) if competition restricts upward mortgage pricing, banks will increasingly refocus their efforts on corporate lending as RoRWA on mortgages becomes increasingly less attractive. Mortgage risk weights are currently as low as 5% for banks using the internal ratings based (IRB) approach due to low probability of default (PD) assumptions used in their internal models given historically low through-the-cycle losses on default.

Hang Seng Bank and DBS appear most at risk: Assuming average mortgage risk weightings are raised to 15%, we find that the core Tier 1 capital adequacy ratios of Hang Seng Bank (UW) in Hong Kong (-34bps) and DBS (UW) in Singapore (-20bps) would likely be the least defensive with their average risk weightings at only 5-6% on our estimates. BOCHK’s average mortgage risk weighting also appears low, but its core Tier 1 ratio
would likely remain high at 13.9% for FY13. For HSBC and STAN, Hong Kong and Singapore mortgages account for only a small part of their group loans and we estimate would only see 2-6bps shave off their core Tier 1 CARs.

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