Ravi Chandran
DBS housing loan business took a hit following the introduction of new property cooing measures in July last year. The bank reported that mortgage growth came in shy of $2 billion for 2018. In November 2018, the bank said it expects new mortgage bookings to end at $2.5 billion for the year. This figure presented then was $1.5 billion less than the bank’s projection in the beginning of last year.
DBS housing loan business is now expected to hit about $1.5 billion to S$2 billion in 2019.
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DBS chief executive officer Piyush Gupta acknowledged the impact of the cooling measures introduced last year on DBS housing loan business in 2018.
Mr Gupta said: “Mortgage business continues to be slow. Actually, our mortgage growth last year didn’t even come in at S$2 billion.” “Bookings have been particularly slow. Overall, our new bookings are coming in at least 30 to 40 per cent lower than they were before the cooling measures,” he added.
Mr Gupta noted that there will be about 65 new projects in Singapore this year and estimated a mortgage growth of $1.5 billion to $2 billion for the bank in 2019.
Despite the DBS housing loan business decline, the bank’s share of Singapore housing loans remains at 31 per cent.
Except for the decline in its housing loan business, DBS Group achieved another record performance in 2018 as net profit rose 28% to $5.63 billion. The bank said that business momentum was maintained over the course of the year despite heightened economic uncertainty and financial market volatility in the second half.
Total income for DBS increased 11% to $13.2 billion from loan and fee income growth as well as a higher net interest margin, which were partially offset by weaker Treasury Markets income.
Reporting on its 4th Quarter earnings, the bank said that return on equity rose more than two percentage points to 12.1%, the highest in more than a decade, attesting to the improved structural profitability of the DBS franchise as interest rates and allowances reached more normalised levels.
Fourth-quarter earnings increased 8% to $1.32 billion. Total income grew 6% to $3.25 billion as sustained loan growth and net interest margin progression over the quarter were moderated by a decline in Treasury Markets income.
Commenting on his bank’s report, Mr Gupta said: “We achieved financial results befitting our fiftieth anniversary, a year when we were also recognised as the world’s best bank and best digital bank. Return on equity of 12.1% was near the historical high of 2007, when interest rates were twice the levels today and capital requirements less stringent.
“The structural improvements we have made to the profitability of our franchise – a shift towards higher-returns businesses, deeper customer relationships and more nimble execution – put us in good stead to navigate the challenges of the coming year.”
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Mr Paul Ho, chief mortgage consultant at iCompareLoan said that DBS housing loan business over the next few quarters is likely to be muted, and that most of the housing loans would be the drawdown of loans already approved before the introduction of the cooling measures.
He added: “Such weaknesses in the bank loan growth is expected to be corrected by the long-term effects of demand-and-supply.
Despite the new property cooling measures and weaknesses in bank loan growth, the Singapore real estate market still looks positive for property investors. The fact is, the overall interest rate environment in Singapore is still considered low on a global scale. This is one major reason why Singapore’s property market will remain buoyant.”
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Mr Ho also pointed out that any US interest rate hike is bad news for borrowers in Singapore. This is because the US Fed rate hike has an impact on credit cards, mortgages, vehicle loans and bank savings accounts here, as Singapore interest rates are closely correlated with those in the US.
Since the beginning of this year, banks have raised interest rates for both fixed and floating home loan packages by 10 – 30 basis points (bps). Some banks have already upped their mortgage rate to 2.05 per cent, to keep pace with the increasing interest rates. DBS is now charging 1.95 percent a year for each of the three years for its 3-year fixed rate package.
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