This is its the highest level since 2004.
UOB’s non-performing housing loans jumped by another 12.3% in Q3, following a staggering 34.2% spike in the second quarter.
According to Maybank Kim Eng, this took the market by surprise, as UOB is widely perceived as one of the more conservative home lenders in Singapore.
However, Maybank Kim Eng also notes that UOB’s housing defaults are isolated to loans originated in 2011 for some individuals for one high-end property development in Sentosa.
“If the sector’s housing-NPL ratio reverts to its peak after the AFC, the risk for UOB’s EPS is estimated at 17%, not much worse than for its peers. We believe investors have more than priced in its housing-loan slippage and less-favourable funding profile. UOB’s PER and P/BV valuation premiums over peers have largely fallen well below their means since Jan 2005,” noted Maybank Kim Eng.
Here’s more from Maybank Kim Eng:
A lack of systemic risk. Management blamed the spike on loans isolated to a group of borrowers who had invested in high-end properties. It does not see weakness in the bank’s overall housing loans. We are also comforted by a lowering of the regulatory LTV limit to 60% from 70% for investment properties since Jan 2011.
Housing-loan resilience even during prolonged economic stress. We believe this cycle is no different, with risks mitigated by strong household balance sheets and property-cooling measures since 2009.
UOB’s housing loan growth is not unusually high. Since mid-2006, its housing loans have grown by a 14.8% CAGR. This is slightly stronger than industry loan growth of 13.6%. Notably, much of the growth occurred during the early years of Singapore’s housing booms in 2006-07 and 2010-11 (Figure 4). This suggests better housing-loan quality.
Do you know more about this story? Contact us anonymously through this link.