Singapore Banks

CIMB Research, Sept 11

THE Monetary Authority of Singapore's (MAS) refined rules on credit cards and unsecured credit are clearly designed to rein in debt in certain segments. Together with the recent mortgage debt-servicing limits and car financing rules, they indicate MAS' concerns of over-leveraging in some households.

We see them as pre-emptive moves by MAS before rates start to rise; we do not believe they indicate any major stress in household or individual debt servicing. We maintain our "neutral" rating on the banks, with DBS staying as our top pick.

MAS issued further policy changes on credit card and unsecured credit. They include requiring financial institutions (FIs) to: 1) review a borrower's total debt and credit limits before granting a new credit card or unsecured credit facility; 2) disclose the cost of rollover debt to individuals who roll over credit card debt; 3) get a borrower's consent before any credit limit increase; 4) not grant further credit to individuals whose debts are 60 days past due; and 5) not grant further credit when cumulative unsecured debt across FIs exceeds 12 months of income.

Coming after June's Total Debt Servicing Ratio (TDSR) framework, MAS' comments that 5-10 per cent of households have breached the 60 per cent TDSR limits and car financing rules, it is clear that the regulators are worried about the household segments who are stretched beyond their means. With interest rates low versus history and long-end rates rising, the risk is clearly on a segment of households that have taken on too much debt on the back of overly-optimistic assumptions of financing cost and unemployment.

We do not see this as a reflection of a systemic household debt problem but a tweaking of rules to rein in certain segments. Looking at data, credit card charge-off rates have been rising recently and might have been the trigger for the latest rules. We deem these measures healthy for the local banking system and inconsequential for loan growth.

The new credit card and unsecured cards rules do not change our view on the sector, nor our order of preference, being: DBS, UOB, OCBC.

Sector - NEUTRAL