Singapore banks are unlikely to suffer significant bad loans from any modest property price correction as the labour market here is relatively buoyant, according to ratings agency Fitch yesterday.

In the event of a modest correction in real estate prices, local banks should not face a significant rise in non-performing loans, said Mr Alfred Chan, associate director of Fitch's Asia-Pacific Financial Institutions team.

Speaking at Fitch Ratings' annual global banking conference yesterday, Mr Chan said Singapore's three banks - DBS Bank, United Overseas Bank and OCBC Bank - are among the most well capitalised in the Asia-Pacific region.

The unemployment rate here is also among the world's lowest, while the Re

public has seen a decline in mortgage and construction loan delinquency rates since the middle of last year.

The result? Fitch's ratings outlook for Singapore banks is 'stable'.

But concern was expressed by Fitch Ratings about China's banking sector at

the same event yesterday.

In a chilling reminder of the US subprime lending woes that triggered the global financial crisis, Ms Charlene Chu, senior director with Fitch's Financial Institutions team, said Chinese banks are selling their loans to 'trust companies', which then create wealth management products around the loans. The bank then takes these products and distributes them to investors.

Ms Chu said that since last year, the China Banking Regulatory Commission has banned banks from selling products built around their own loans, but deals are becoming 'increasingly complex' to circumvent regulations.

'Regardless of how the transaction is structured, credit is disappearing from bank balance sheets, resulting in pervasive understatement of credit growth and credit exposure at an institutional and systemic level,' she warned.

She also said many investors are unaware they are taking on such high credit risks, and there is no secondary trading of products so positions cannot be exited until maturity. 'Disclosure is already extremely poor and getting worse,' Ms Chu said.

Source : The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.