Real estate corrections not to affect Singapore banks: Fitch

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By Besta Shankar | June 25, 2010 1:33 AM EST

In the event of any correction in real estate prices of Singapore, banks in the island nation are not likely to face major impact in terms of bad loans, said a report by Fitch on Thursday. The agency finds flexible labor market in Singapore as the reason behind the banks not getting hit by any correction.

“Singapore's unemployment rate is among the lowest in the world, under 2.5%, and the city state has already seen a decline in mortgage and construction loan delinquency rates since mid-2009. Moreover, local authorities are likely to implement more measures to curb excessive speculation, which if unchecked could have a negative impact on the banking sector,” the report said.

The three major Singapore banks -- DBS Bank, United Overseas Bank, Oversea-Chinese Banking Corp -- are in the list of most well-capitalized in the Asia-Pacific region, the report stated.

"Fitch expects the three Singapore lenders to post net interest margins of around 2.1% and about 1.3% for return on assets", says Alfred Chan, Associate Director of Fitch's Asia-Pacific Financial Institutions team.

The report cautions on the political risks if continued for a long term in Thailand, the banks performance will be affected severely, though they have the necessary capital to cushion the impact in short-term.

Regarding Indian banks, the report finds some of the banks’ performance getting hit from higher specific provisioning requirements that may require extra high-quality capital.

In case of China, “accelerating loan growth at China's banks has considerably raised their credit risk exposure, pressured capital and funding, making future asset quality deterioration a near certainty,” said Charlene Chu, Senior Director with Fitch's Financial Institution team.

“Chinese banks' financial positions are more strained than it appears, putting downward pressure on their Individual Ratings as well as complicating the implementation of additional stimulus in the event of a 'double-dip' recession.” Chu said.

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