Stronger Sing$ may weigh down interest rates

Inflows may increase, but stronger currency could hurt exports - SIOW LI SEN

Amid the clouds of uncertainty hanging over some sectors, there is good news for home loan borrowers. Interest rates are poised to fall to levels last seen in 2003 following the move to let the Singapore dollar appreciate strongly in an effort to fight imported inflation.

The Monetary Authority of Singapore (MAS) will be busier than ever - intervening in the banking system to mop up some of the extra liquidity in order to moderate the pressure on interest rates.

Low interest rates might negate some of MAS's anti-inflationary measures by helping fuel domestic growth. But economists say MAS will stick to its guns of using the exchange rate as a tool to fight inflation given Singapore's open economy.

Last week, data showed that the economy grew a stronger than expected 7.2 per cent in the first quarter against 5.4 per cent in Q4, 2007. Inflation rose to a 26-year high of 6.6 per cent.

Analysts expect the three-month Sibor to fall to between 0.75 and 1.00 per cent by the fourth quarter of this year as capital flows are attracted here by a rising Singapore dollar.

The record low for three-month Sibor was 0.56 per cent reached in August 2003, when the US Federal Funds rate was at one per cent, said Citigroup economist Kit Wei Zheng.

Since last Thursday when the MAS decided to reset the Singapore dollar higher, the key three-month Sibor, which is the interbank interest rate, has fallen some 19 basis points to 1.25 per cent.

'Foreigners are betting the Singdollar will appreciate ... the band re-centring would reinforce the market perception that MAS wants the exchange rate to appreciate and increase investor expectations of returns on Singapore dollar assets,' said Mr Kit. This would exert downward pressure on short-term interest rates.

The Singapore dollar is now expected to rally to $1.31 by the end of the year against the US dollar. It was $1.36 yesterday.

It is not clear if MAS's move last week will ease inflation significantly given the persistently high commodity prices, record rents and higher transportation charges.

But the more immediate impact of a stronger local dollar could weaken the demand for exports and hurt the profits of foreign companies operating here, given that their costs are in local currency terms, said some economists.

'There will be a slowdown in exports, likewise for foreign companies, their profit margins will be impacted,' said Mr Kit.

United Overseas Bank's Suan Teck Kin thinks there would be a margin rise in inflows by investors to pick up some gains on the appreciating Singapore dollar, but 'overall, we might not see a wholesale rush of capital inflows'.

'This is because from a foreign investor's point of view, currency return is only one component of total return,' said Mr Suan. 'So if an investor believes there is more upside to the equity/ bond/property market and the upside is better than other parts of the region, then the capital will follow.'

Still, the market is bracing for more MAS interventions and sterilisations.

'Investors should expect the MAS to continue sterilising aggressively, so as to moderate the fall in domestic interest rates as a result of its forex interventions,' said Mr Kit.

MAS has been sterilising in unprecedented amounts.

In February, data showed that MAS sterilised or removed about US$8 billion from the banking system, the second largest amount since May 2006 when it was over US$9 billion, said Mr Kit.

This means that Singapore's reserves will continue its climb to record levels.

At the end of March, spot reserves reached S$245 billion, up S$18.8 billion from October, he said.

'Our reserves are always climbing, the same for many Asian countries,' he said.

Source : Business Times - 15 Apr 2008

Fewer home loans taken up as property market cools further

Mortgage default rate also falls but some banks see refinancing deals rise

The number of home loans taken up has fallen sharply in recent months as the property market continues to contract.

Only 4,200 new home loans were approved in January, up about 13 per cent on the 3,722 in December but down 21 per cent from the peak of 5,319 last August.

The Credit Bureau of Singapore figures also show that 2,544 second mortgages were taken up in January, a 31 per cent drop from the high of 3,698, also last August.

‘We expect the growth in new mortgages to slow further this year,’ said Credit Bureau general manager Mark Rowley.

Inquiries for new home loans have also dropped, down to 8,923 in February, the lowest since April 2006.

Mr Gregory Chan, OCBC Bank’s head of consumer secured lending, said: ‘We have observed that property buyers are becoming more cautious in their purchase decisions.’

United Overseas Bank’s (UOB’s) head of loans, Mr Kevin Lam, said that ‘in line with property sales transactions, our loan applications were slower in January and February’ but there was ‘a pick-up in market activity at the end of March’.

His counterpart at HSBC Singapore, Ms Alice Chia, said the bank has ’seen a reduction in applications for new home loans, which is reflective of sentiment towards the property market’.

But she pointed to one area where banks are getting increased business - more people are re-mortgaging their home to take advantage of the declining interest rate environment.

‘We have seen an increase in the number of refinancing applications over recent months,’ she said.

Maybank and OCBC have also encountered more home owners looking to refinance.

Ms Helen Neo, Maybank’s head of consumer banking in Singapore, said it launched financing packages in February ‘catering to customers seeking refinancing’ and has received ‘an encouraging response’.

However, Standard Chartered and UOB said they have not seen a significant increase in customers wanting to refinance.

The Credit Bureau figures also revealed certain more positive aspects of the mortgage market.

The number of delinquent account holders has fallen to 4,636, or just 1.63 per cent of total mortgage holders - the lowest in two years.

This allays concerns raised during the speculative frenzy last year that some buyers would overstretch by taking on loans they could not afford.

Mr Rowley said the lower delinquency rate is ‘a good sign’ that Singapore customers are creditworthy, even as loan amounts have risen steadily.

The increase in the number of home owners with significantly larger mortgages has also been striking.

There were 7,404 home owners with outstanding balances on their mortgages of over $1 million in January. This was an 81 per cent jump over February last year. This segment makes up almost 3 per cent of the total number of mortgage holders in Singapore.

Source : Straits Times - 9 Apr 2008

Bank savings earn less interest as key rate plunges

Banks trim rates on deposits as they struggle to maintain margins

SAVERS are again feeling the pinch as interest rates continue to fall, further squeezing what meagre returns they might get on bank deposits.

Citibank, Maybank and Standard Chartered Bank (Stanchart) have all trimmed rates for their high interest savings accounts given the fall in the rate banks pay each other to borrow cash.

This rate - the Singapore Interbank Offered Rate (Sibor) - hit a 12-month low of 1.25 per cent last month. It has fallen steadily from 2.88 per cent a year ago, and economists say it will drop further.

With their own margins under pressure, banks have responded by trimming rates for customers.

Maybank has cut rates for iSAVvy, an online savings account, from 1.08 per cent to 0.88 per cent a year for a daily balance of $5,000 to $50,000.

Stanchart’s rate for its eSaver online savings product is 1.08 per cent a year, down a tad from a month ago when it paid 1.2 per cent for deposits from $50,000 to $199,999.

The base rate for Citibank’s Step-Up Interest Account - it pays progressively higher rates as the monthly balance increases - has fallen by more than half to 0.3 per cent a year.

Mr Robin Chua, the head of deposits at Citibank Singapore, said the revised rate of 0.3 per cent is competitive compared with rates for other typical savings accounts.

‘The maximum Step-Up interest rate, at 1.2 per cent a year, is actually in line with what the industry offers on a Singdollar, 12-month time deposit,’ he added.

DBS Group Holdings, United Overseas Bank and OCBC Bank have also adjusted some of their fixed deposit rates downwards.

For instance, the three banks recently lowered their 12-month fixed deposit rate for amounts between $50,000 and $1 million to 1.2 per cent a year from 1.4 per cent earlier this year.

The leaner interest rates have prompted some consumers to shop around for the best offers in town.

Client servicing staff Mak Wei Jiat recently closed her eSaver account at Stanchart and moved the money to a Maybank iSAVvy account.

‘It may be only a small change in interest rates, but it can add up to a lot when you’re factoring in a big sum,’ she said.

IT operations manager Calvin Chin said with inflation climbing and interest rates declining, he will be earning less on his savings.

Meanwhile, with the share market so volatile, people like himself will be cautious about committing themselves to risky investments.

‘For the man in the street, besides keeping cash at home, the option available to him is to continue to keep savings in a bank,’ complains the unhappy 38-year-old.

Economists believe saving rates here could head lower in the near term, partly because of interest rate cuts in the United States and a strengthening Singapore dollar.

‘We think Sibor will trend below 1 per cent by the second half of the year, and stay low for a while,’ said Stanchart economist Alvin Liew, who also believes the US will be in for a protracted recession.

OCBC Bank economist Selena Ling feels any turnaround in Sibor is likely to come only when there is greater clarity over the US recession, what end-point the Federal Reserve sets for its rate-cutting cycle and what monetary policy expectations Singapore’s central bank has.

Source : Straits Times - 7 Apr 2008

10 ways to overcome the shrinking dollar

It takes discipline and a sound investment strategy to combat the corrosive effects of inflation, say financial experts.

1 Cut down spending, live within your means

IPP Financial Advisers investment director Albert Lam’s advice is to review your lifestyle and consumption patterns.

For instance, you can substitute a branded item with a no-frills one, or switch to a cheaper mode of transport like the bus.

2 Try to save 20% of your pay or more

This is a useful tip especially for those just starting their careers, says head of ipac financial planning’s advisory team, Mr Bill Castellas.

Establishing a disciplined pattern of ‘money behaviour’ will go a long way towards building surpluses for long-term investments.

3 Do not be overly conservative

Invest your money instead of leaving all of it in savings deposits or fixed deposits, said Mr Lam.

New Independent’s financial advisory manager Stanley Sim also suggests that instead of parking spare cash in savings deposits, investors can place it in money market funds that have zero sales charges and offer better rates.

4 Don’t rely solely on guaranteed products

Mr Castellas feels that such products, like bonds, might provide peace of mind but only marginal protection against inflation over the long term.

5 Save regularly via an investment platform

The earlier you start investing a small amount that you can afford to set aside, the quicker your investment will grow till it builds up into a significant sum in later years.

‘Set aside an affordable sum from your daily expenses each month via a regular savings plan,’ said Mr Castellas.

‘You can put it into growth-oriented assets like equities and or real estate investment trusts.’

6 Take on sensible level of investment risk

Build an investment portfolio with a reasonable spread of defensive and growth assets that suit your lifestyle.

7 Invest for returns that will beat inflation

In order to beat inflation, consider investing in a globally diversified portfolio of stocks and bonds with a long-term horizon, said Mr Sim.

A moderate-risk portfolio, comprising 60 per cent equities and 40 per cent bonds, should be able to generate a 6 to 8 per cent return a year over the long term.

8 Understand the power of compounding

Start planning, saving and investing as early as possible so you can enjoy the benefits of compounding, said Mr Lam.

He suggested investors apply the Rule of 72, a handy tool that illustrates the effects of compounding.

To work out how long it will take for your investment to double in value, divide 72 by the percentage return. With a return of, say, 9 per cent a year, to double your money, you will need eight years, that is, 72 divided by nine.

Mr Sim noted that if you can invest $10,000 in an instrument that gives you an annual return of 6 per cent, that sum will grow to about $32,000 after 20 years.

If you start early, the compounding effects will help you fight inflation by preserving and growing your wealth.

9 Invest in asset classes that appreciate

Both Mr Lam and Mr Sim gave property as an example. But invest in this asset class only if it is within your means.

If rents increase at a faster rate than inflation, your property rental yield will provide a healthy return, they said.

10 Limit exposure to depreciating assets

Such assets include consumer goods like cars.

Source : Sunday Times - 6 Apr 2008

What is SIBOR

It stands for the Singapore Interbank Offered Rate

Where do you see this?

In bank statements explaining how your mortgage rates are determined.

What does it mean?

It refers, more or less, to repayments on your loans, because Sibor affects the mortgage rate.

Sibor is the rate at which banks lend to one another. When it falls, so do rates for variable or Sibor-linked mortgages. When the Sibor rises, you have to fork out more.

Sibor also gives a rough indication of where deposit and savings account rates at banks might be headed, as it is influenced partly by the supply and demand for funds in the Singapore interbank market.

When Sibor is low, it is cheaper for foreign banks, which have a smaller deposit base than local ones do, to borrow funds from the interbank market for their lending activities.

When this happens, the foreign banks are less likely to offer higher fixed deposit rates to attract Singaporeans to park cash with them.

But when liquidity in the market is tight and interbank rates rise, local banks will offer more attractive rates to convince Singapore savers not to switch to foreign rivals.

Why is it important?

Sibor is a key component used by banks in setting their home loan rates.

A blend of different interest rates - such as one-month, three-month and even 12-month Sibors - is typically used by banks to set fixed or variable rates for home loans.

The three-month Sibor is a common benchmark rate used by the banks to adjust their deposit rates. By monitoring it, you can get an indication of where banks are headed next with their fixed deposit and savings account rates.

Sibor is also used to set rates for so-called transparent mortgage packages offered by the three local banks as well as Standard Chartered, HSBC and Citibank.

These are linked directly to Sibor or another publicly disclosed rate, such as the Central Provident Fund (CPF) rate or the swap offered rate (SOR).

SOR is made up of Sibor plus a bank’s lending costs, and is currently at about 1.39 per cent, down from 3 per cent a year ago.

In a falling interest rate environment, mortgage rates linked to Sibor or SOR will also trend downwards.

Sibor tends to track the United States Federal Reserve funds rate, which has been slashed in recent weeks to 2.25 per cent as the Fed attempts to stave off an economic recession in the US.

Sibor has plummeted from 2.94 per cent to 1.31 per cent over the past year, and economists say it might not have bottomed out yet.

Source : Sunday Times - 6 Apr 2008

Don't overpay for your home loan

With over a hundred home loan packages available in Singapore, DENNIS NG discusses how to pick the right one

WHAT interest rate are you paying on your housing loan? If you are paying 3.5 per cent or more, you might be overpaying. With the US Federal Reserve cutting interest rates, the Singapore Inter-bank Offered Rate, or Sibor, has been on a downward trend. Sibor is the rate at which banks lend to one another. Currently, the three-month Sibor has fallen to about 1.4 per cent, down from about 2.5 per cent last year.

Banks have started lowering interest rates offered on housing loans to as low as 2.08 per cent. Thus, if you're paying an interest rate of 3.5 per cent or more, it might make sense for you to refinance your housing loan to enjoy interest savings.

For example, if your outstanding loan is $500,000 and you're currently paying 3.5 per cent interest with a remaining loan period of 20 years, the total interest savings for the next three years from refinancing can work out to $13,831.38. After factoring in the cost of refinancing, the net interest saving still works out to $13,331.38. Thus, by refinancing, you can be 'richer' by over $10,000.

Floating rate vs Sibor/SOR pegged packages: Each bank will usually set its own board rate and after deducting a 'discount factor', arrive at the floating (adjustable) interest rate charged to clients. The problem is that each bank will set its own board rate arbitrarily and there might be occasions when Sibor rates fall, and banks don't reduce the interest rates charged on floating (adjustable) rate packages. Thus, in a bid to increase the transparency, some banks have recently introduced housing loan packages with interest rates pegged to Sibor or Swap Offer Rates (SOR).

The advantage of such packages is that as and when inter-bank offer rates move up or down, your interest rate would be adjusted as well - it would not be at the bank's discretion. Currently, Sibor/SOR have fallen below 1.4 per cent and interest rates charged on such loans can be as low as 2.08 per cent.

With the US expected to continue cutting interest rates in the next few months, Sibor is expected to remain low or even fall further in the next six to 12 months. Thus, if consumers hold the view that interest rates are likely to fall, choosing a housing loan package pegged to Sibor would enable them to automatically enjoy lower interest rates as Sibor moves lower.

Beware: Fixed rate packages typically come with lock-in periods. Some banks recently also adjusted interest rates charged on their fixed rate packages downwards to an average of 2.58 per cent for the first three years. However, such packages come with a penalty period of three years. Thus, such packages might not be suitable for consumers who intend to sell their property within the next three years, as they are liable to a penalty fee.

Should you apply for a housing loan now for properties purchased on a deferred payment scheme? You might have purchased a property on a deferred payment scheme and only need to take a loan when the project gets its Temporary Occupation Permit (TOP), which might be in 2009 or 2010. Should you apply for a housing loan now?

By applying for a loan now, you eliminate the risk of loan rejection should there be any adverse change in your financial situation in future, for instance, a pay cut or job loss when the property is ready. You also eliminate the risk of banks granting a lower loan quantum should the property market turn and prices fall. To safeguard your interests, you can choose a loan package that allows you a free loan conversion so that you can switch to a better package should one be available nearer TOP.

Cash in on your property without selling it: With property prices having gone up in the past three years, you might now own a property whose value has doubled. In that case, your current debt-to-asset ratio might have fallen considerably.

For instance, say you bought a $1 million property three years ago and took an 80 per cent loan, or $800,000. Currently, the loan outstanding is about $750,000, while the current value of this property might have gone up to $2 million. This means your current debt-to-asset ratio is only 37.5 per cent.

How can you benefit from the rise in the property price without selling your property? You can consider taking an equity loan on the property. For instance, in the above example, subject to your credit score, banks might grant you an additional equity loan of up to $850,000. To be conservative, you can consider taking up a lower equity loan of, say, $450,000, bringing your debt-to-asset ratio to a comfortable 60 per cent. You can use the $450,000 equity loan granted by the bank to start a business, or even to invest in another property. The interest rate on equity loans in Singapore is very low and can be as low as 2.2 per cent currently.

Should you pay off or reduce your housing loan?: The Singapore government has projected the inflation rate in 2008 to be about 5 per cent. On the other hand, the interest rate on housing loans is about 2.2 per cent. Thus, we have a rare scenario of negative interest rates, that is, a person who takes a housing loan is actually ahead of someone who saves money in bank deposits because of the shrinkage of money from inflation.

On the other hand, interest rates on bank deposits have fallen to about 1.5 per cent. With inflation at 5 per cent, it means that a consumer is losing 3.5 per cent a year by putting money in bank deposits.

Instead of paying down your housing loan which charges low interest rates of less than 3 per cent, you can consider investing your cash in a stable investment that is not subject to large price fluctuations and offers higher returns than fixed deposits. One example is UK-traded endowments, which have a guaranteed cash value and generate annual returns of 6-8 per cent.

How to choose a suitable housing loan?: There are over 113 different housing loan packages available in Singapore at any one time. Each package has its own unique features, with its own pros and cons and different terms and conditions. Consumers might be confused by the wide array of choices. In the last few years, with the emergence of independent mortgage brokers in Singapore, home loan shopping and comparison have been made easier.

Basically, an independent mortgage broker who knows your requirements can help you zoom in on the most attractive home loan packages suitable to your needs. You typically do not have to pay for the service of a mortgage broker as banks pay them a fee.

In more advanced countries such as the US and Australia, people usually apply for home loans through a mortgage broker rather than go to the bank directly. In Singapore, many people are still unaware of the services and benefits of engaging a mortgage broker, but things are likely to change with public education and increasing awareness.

Dennis Ng is a Certified Financial Planner with 15 years of experience in bank lending. He co-founded an independent mortgage consultancy portal www.HousingLoanSG.com in 2003.

Source : Business Times - 27 Mar 2008

Industry players expect more homeowners to refinance their mortgage loans

Industry watchers expect more home owners to consider refinancing their mortgage loans as interest rates look set to dip further.

In fact, mortgage and financial planning firm SingCapital has seen a three-fold jump in enquiries in the last two months.

Property agents are also getting a crash course in mortgage planning, including answering questions about refinancing of home loans.

This occurs when homeowners seek out more favourable loan packages from other lenders.

Industry players said it’s the right time to refinance, which could save a huge amount in interest payments.

Alfred Chia, CEO of SingCapital, said: “Just from last year itself, interest rate could be as high as four per cent, compared to current rates where the average is about 2.5 per cent per annum. There’s a big difference over there. Based on what we can see, interest rates will continue to fall, till the next six months.”

Market watchers expect interest rates to fall a further half a percentage point in the Singapore Interbank Offered Rate or SIBOR by September.

It’s partly linked to the recent cuts in US interest rates to contain the fallout from the sub-prime crisis.

SingCapital said it receives about 60 enquiries on refinancing each month.

Among these, seven in ten are private property owners.

Banks have also been enticing more customers with Maybank, Standard Chartered Bank and DBS among the most aggressive in the home loans market.

Mr Chia added: “There’re some packages currently that offer 2.88 fixed for three years with a cash back of one percent. If it’s a refinancing case, the one percent cash back would be given to the owners one month after the loans is disbursed.

“So if you add this interest rate, minus the cash rebates, the cumulative rate is only seven over percent, on average every year it’s about 2.5 or 2.6 per cent interest.

“And it gives you the stability to plan for other finances, knowing that your monthly instalment for the house is going to be fixed at that price for the next three years.

Even though this may look like a good time to consider refinancing mortgage loans, industry players said home owners should assess the different packages based on their individual needs.

They should also be aware of the potential risks arising from the US sub-prime crisis and inflation.

Source : Channel NewsAsia - 24 Mar 2008

Industry watchers expect SIBOR to dip 0.5 percentage point in 6 months

The Singapore Interbank Offered Rate or SIBOR is expected to dip a further 0.5 percentage point over the next six months.

Industry watchers said this will present an opportunity for homeowners and companies to refinance loans on their properties.

The US Federal Reserve recently cut its benchmark interest rate to 2.25 per cent in a bid to prop up the American economy.

And this has indirectly put a drag on SIBOR - the rate at which Singapore banks lend to each other.

Financial planning firm SingCapital expects SIBOR to slide by some 0.5 percentage point in the short term, from the current 1.425 per cent.

Alfred Chia, CEO of SingCapital, said: "In the next 6 months we expect SIBOR rates to follow the Federal Reserve's although not at the same quantum. The current interest rates fall is to combat the sub-prime issues in the US.

“So when Federal Reserve finds that they have handled that situation, the next issue they will be looking at is to combat inflation which will mean interest rates may rise back again."

So financial planners said property owners could consider refinancing mortgage loans now, saving them money in interest payments.

And there appears to be no lack of choices for consumers when it comes to selecting loan packages.

Mr Chia added: "I would say DBS has always stressed on transparency to customers but lately we are seeing foreign banks coming in very aggressively.

“For example, Maybank, they offer first year at as low as 1.68, and for example Standard Chartered where they are promoting their SOR (swap offer rate) package.

"With so many activities happening for Singapore, F1, IR, Youth Olympics, definitely the demand for housing is growing, so in the long-term we are very confident about loans growth for the banks."

Even though this may look like a good time to consider refinancing mortgage loans, industry players said homeowners should assess the different packages based on their individual needs.

They should also be aware of the potential risks arising from the US sub-prime crisis and inflation. - CNA/vm

Source : Channel NewsAsia - 24 Mar 2008

Singapore interest rates likely to fall further

Fed cut and robust Sing$ could push interbank lending rate below 1%

SINGAPOREANS can expect cheaper mortgages but lower savings and fixed deposit rates in the months to come.

This is after a move by the United States Federal Reserve to slash a key US interest rate last week.























The Fed had cut three-quarters of a point off its federal funds rate, bringing it to 2.25 per cent, to fight a mushrooming credit crisis and a slowing US economy.

Economists in Singapore said the lowering of the Fed funds rate will have a knock- on effect in the Republic.

The Singapore Interbank Offered Rate (Sibor), or the rate at which banks lend to one another, tends to track the Fed rate.

Citigroup economist Kit Wei Zheng said: 'For Singapore rates, the trend is downwards. We expect the Fed to cut its rate to 1 per cent and Singapore should follow with a lag.'

He lowered his forecast for the Sibor, estimating it would fall to as low as 0.75 per cent by the end of the third quarter, down from an earlier estimate of 1 per cent.

A recent report by DBS Group Research also forecast the Sibor would fall, to 0.83 per cent in the second quarter, and remain at that rate through the second half before rising next year.

The three-month Sibor fell to a 12-month low of 1.25 per cent last Monday, before recovering to 1.425 per cent on Thursday, ahead of the Good Friday public holiday.

Mr Kit said Singapore rates were also affected by the Singapore dollar's appreciation against the US currency. He said the Singdollar is most probably at the top end of the secret trade-weighted band within which the Monetary Authority of Singapore (MAS) guides the currency.

'With the Singdollar expected to continue appreciating, MAS will aim to moderate it by flooding the market with liquidity, which will in turn pressure interest rates downwards,' he said.

OCBC economist Selena Ling said another consequence of the strong Singdollar would be a high inflow of foreign capital into the Republic. 'This can also contribute to lower interest rates.'

For consumers, the net result is both good and bad.

Banks recently embarked on a mortgage loan war, with Maybank firing the first salvo last month with an aggressive three-year, fixed-rate package offered at 1.68 per cent for the first year.

DBS Bank and United Overseas Bank (UOB) have also unveiled attractive packages. UOB has one that offers a zero rate in the first year.

And with Sibor-linked home loan package rates likely to head south too, it could be a good time to refinance mortgage loans, experts said.

A DBS spokesman said: 'DBS offers transparent mortgage rates pegged to the Sibor and the CPF Ordinary Account rate, so our rates will move in tandem with market forces.'

But there is also the possibility that savings and fixed deposit rates could slump as interest rates go down.

OCBC's vice-president for group wealth management, Mr Fabian Lum, said the bank would review its deposit rates to keep them in line with prevailing market conditions.

And while the bank has not changed its savings rate recently, it lowered its 12-month fixed deposit rate for amounts between $50,000 and $1 million to 1.2 per cent a year from 1.4 per cent earlier this month.

DBS said that its savings deposit rates had not been adjusted since 2005, but added that its fixed deposit rates are always pegged to the interbank rate and would thus be adjusted accordingly.

CIMB-GK economist Song Seng Wun said that the low interest rates did not reflect a lack of liquidity on the part of banks. 'The loans-deposit ratio is still very strong, so banks definitely have the money to lend,' he said.

'But I think there is greater caution now, after what has happened in the US with the sub-prime crisis, and people are much more cautious nowadays when it comes to borrowing and lending money.'

Source : Straits Times - 24 Mar 2008

What goes up stays up, what goes down also stays up

I REFER to the news report, ‘Mortgage war breaks out as DBS and UOB offer new rates’ (March 8). It said that a mortgage loan war has broken out partially due to competition and also lower Sibor and SOR (3 per cent to 1.5 per cent) since 2007. However, the banks are not being fair to their existing customers as mortgage loan rates are not lowered for their existing customers.

In 2006, the interest rate of my HDB mortgage loan with UOB was raised three times from 2.6 per cent to 4.1 per cent. Inevitably, the reason given for the increase was the increase in interbank market interest rates. As I noticed that the interbank market interest rate had fallen steadily since last year, I wrote to UOB to request a revision in my mortgage loan rate. However, I was told that the bank was monitoring the situation and that no revision would be made to my loan. Instead, I was offered a new package that required me to pay a conversion fee of $500 and have my loan locked with the bank for a longer period of time.

When interbank market interest rates go up, banks revise our mortgage loan rate upwards almost immediately. However, when interbank market interest rates go down, no revision is made at all. Is this fair?

Yeo Heng Ngi

Source : Straits Times - 17 Mar 2008

UBS is largest private bank in Singapore, HK: study

DBS is No.6 with 5% of private banking assets in Asia ex-Japan

SWISS banking giant UBS has been crowned the biggest private banking player in Singapore and Hong Kong.

It manages one-sixth of the US$600 billion (S$833.7 billion) of private banking assets in Asia, excluding Japan, which are mostly parked in the two Asian wealth management hubs.

The finding comes from the first-ever private banking league table compiled by an independent party - consultancy Calamander Group - in Hong Kong and Singapore.

The rankings confirmed conventional wisdom that the big guns of Citigroup, HSBC, Credit Suisse and Merrill Lynch would be in the top five.

But it may surprise some that home-grown DBS Group Holdings has come in at No.6 with a 5 per cent market share, trumping major global players such as JPMorgan.

Local rivals United Overseas Bank and OCBC Bank trail behind, each managing US$5 billion of assets compared with DBS' US$30 billion. DBS has 'done well', quadrupling its assets under management between 2001 and 2006, said Mr Roman Scott, the managing director of Singapore-based Calamander.

Its growth is driven partly by its high profile in the fast-growing Singapore market, which Mr Scott estimated comprises private banking assets of more than US$250 billion.

The ranking lists ballpark figures about private banking players in Asia, which have tripled the assets they manage from US$200 billion five years ago.

Mr Scott said the table is 'conservative', with an accuracy of plus or minus 10 per cent, and excludes some newer entrants, such as Switzerland-based EFG and Standard Chartered.

Unlike five years ago when the Singapore and Hong Kong markets were so fragmented that the top five players barely held 10 per cent of the pie, five mega banks now dominate 55 per cent.

UBS is still the 'standout team, tripling its size from five years ago', said Mr Scott.

DBS has climbed to the top of the mid-tier group with its strategy to be an Asia-focused private bank and attracting many newly rich Singaporeans, non-resident Indians and Indonesians, he added.

But mid-tier rivals such as Deutsche Bank and Morgan Stanley have been growing at an even faster pace, so DBS may not maintain its lead for long, he said.

While Hong Kong's pool of wealth is larger at about US$350 billion, Singapore has been attracting more new private banking accounts in recent years. The country has about 40 private banks. Their rapid expansion has ignited a battle for talent and caused office rental rates to skyrocket.

Singapore's efforts to transform itself into a wealth management hub for the region by offering lower corporate and personal taxes, and maintaining strict banking secrecy laws, have earned it the title of 'Switzerland of the East'.

But it can now also be called 'Monaco in the tropics', as its high-end residen-

ces, upcoming Formula One race and casinos will offer a lifestyle that suits the mega-rich, said Mr Scott.

Of the US$250 billion booked in Singapore, about 15 per cent is held by local wealthy clients, he added.

The number of millionaires in Singapore shot up by 11,000 people, or 21.2 per cent, last year - the fastest growth rate in the Asia-Pacific and one of the fastest in the world, said a 2007 Merrill Lynch-Capgemini report.

The remaining 85 per cent of private banking assets in Singapore are held by Asians, as well as people of other nationalities, said Mr Scott.

Indonesians hold more than US$105 billion in Singapore. Only about US$17 billion, or 7 per cent of the total pool, is held by Europeans and Russians, Mr Scott added.

A more controversial issue in Singapore's private banking sector is the inflow of European money. Last year, the European Commission put pressure on Singapore to ease its banking secrecy laws.

It also raised concerns that the country has become a shelter for funds exiting the European Union after its member nations slapped a withholding tax on offshore savings of EU citizens.

MAIN DRIVER

DBS' growth is driven partly by its high profile in the fast-growing Singapore market that comprises private banking assets of more than US$250 billion (S$347 billion), says Mr Scott.

Source : Straits Times - 12 March 2008

Survey shows consumers looking for more flexibility in loans

People's attitudes towards loans are changing, according to a survey conducted by consumer finance firm, GE Money, last month.

With the Singapore economy expected to moderate this year, two thirds of 365 consumers polled said they were more cautious about taking up loans.

A total of 95 percent of respondents said flexibility was very important when applying for a loan.

Almost half said they wanted flexible options to deal with unexpected events any time through their loan period.

Alok Kumar, chief marketing officer, GE Money Singapore, said: "The needs are changing; the price or interest rates are not the only factors that excite the consumers.

"Consumers are conscious of the fact that their lifestyles are changing and they want their product to work harder through flexibility, options and choices."

Source : Channel NewsAsia - 11 Mar 2008

Interest absorption scheme: New form of deferred payment - but with a catch

Property developers and banks revive old scheme that involves interest absorption.

IN A bid to tempt home buyers back into the cooling property market, banks are teaming up with developers to bring back deferred payment - or something like it.

They are resurrecting an older scheme known as interest absorption, which also allows buyers to postpone the bulk of their payments on new homes.

This decade-old plan had been phased out over the last few years in favour of the more popular deferred payment. But it is now making a comeback after the Government pulled the plug on deferred payment plans last October, saying they encouraged speculation in the then red-hot property market.

Though interest absorption may sound like deferred payment, here’s the catch: The home buyer has to take up a bank loan at the point of purchase, with a specific bank that has tied up with the developer to offer the scheme.

In contrast, the deferred payment scheme did not require a buyer to take a loan until the home was fully built. This was thought to encourage speculation, as one could buy and resell many unbuilt homes without taking a single loan.

Interest absorption plans offer two extra deal sweeteners. First, the developer absorbs interest payments on the loan until completion. Depending on the loan amount and tenure, this could work out to a few tens of thousands of dollars.

Another perk: Most units sold under interest absorption schemes do not cost more than those under normal payment plans. Developers used to charge slightly more for units sold with deferred payment.

Industry experts say interest absorption plans were introduced in the late 1990s to spur home-buying in the downturn. Then, not all plans had a deferred payment component - in some, developers just absorbed interest until completion.

Only United Overseas Bank (UOB) and OCBC Bank offer interest absorption plans with a deferred payment feature. They have tied up mainly with smaller developers and projects. One is Cosmo in Guillemard Crescent, which is almost fully sold. While final figures are not in yet, developer Fission Development expects about half to opt for interest absorption. ‘It’s a good arrangement for everyone as the bank does a credit assessment of the buyer…so that takes a lot of the risk out of the equation for the developer,’ said Fission managing director Melvin Poh.

UOB is believed to have provided interest absorption with deferred payment for at least five projects launched in the last three months. A bank spokesman said the response ‘has always been positive…even before the abolishment of deferred payment’.

OCBC is offering the plan at a few other developments, but declined to comment, citing competitive reasons.

On the whole, interest absorption schemes shift the risk of buyer default from the developer to the bank, said director of marketing and business development Ku Swee Yong, at Savills Singapore.

‘I would expect the bank’s interest rate to be marked up slightly to account for the extra risk,’ he said, adding such plans would help genuine home buyers who may have needed the deferred payment scheme to buy a new home.

Meanwhile, boutique developer Roxy Homes will absorb stamp duty for buyers who pick up a unit at its Ambrosia project in East Coast Road this weekend.

How interest absorption scheme works:

A buyer makes a down payment, typically 20 per cent.

He defers the rest of the payments until the property is completed.

But he has to take up a bank loan at the point of purchase. The interest, however, is absorbed by the developer.

If the buyer resells the property before completion, he will have to pay a penalty to redeem or cancel the loan.

How prohibited deferred payment scheme worked:

Home buyers need not take a loan until the home was fully built.

This was a boon to speculators who could buy and resell unbuilt homes without taking a loan.

Source : Straits Times - 11 Mar 2008

Deutsche Bank increases Singapore office space

It will rent 54,000 sq ft at ex-Pasir Panjang ITE.

AFTER growing its headcount by over 20 per cent last year, Deutsche Bank says that it will increase its office space needs here by another 54,000 square feet.

Speaking to BT, Deutsche Bank’s chief country officer Ronnie Tan said that with the increase, it will now employ about 2,100 full-time staff in Singapore alone.

Mr Tan added: ‘We are experiencing significant growth in all our major business lines. One example is private wealth management, where Deutsche Bank increased investable assets by 19 per cent in 2007 to 22 billion euros (S$46.9 billion).’

The bank is optimistic about the ‘Asian story’ and has invested accordingly.

‘We have come through the financial uncertainty more positively than others and I believe it’s a good time to play on our strengths - we have a strong credit rating, a strong brand and we’ve weathered the storm extremely well,’ he added.

In 2007, Deutsche Bank’s net income was up 7 per cent year-on-year.

Deutsche Bank already occupies nine floors at One Raffles Quay. Taking up more than 280,000 sq ft, it is the largest single tenant there. It has also leased a further 100,000 sq ft in the central business district (CBD) for infrastructure functions.

While Deutsche Bank did not say if it would vacate some of its CBD premises, it will be taking up 54,000 sq ft at the former Institute of Technical Education (ITE) Pasir Panjang. The premises, with a gross floor area of 218,891 sq ft, was put up for rent by the Singapore Land Authority (SLA) last year and was subsequently leased to master tenant RichZone Properties for $288,999 a month or $1.30 per square foot (psf) per month.

Asking rents for the site are said to have increased from the initial $4 psf per month to $5-5.50 psf per month now.

On the rationale for Deutsche Bank’s move, Mr Tan said: ‘The move to the new premises is part of our growth strategy to accommodate increasing staff numbers in Singapore and to provide flexibility for further growth.’

Singapore is Deutsche Bank’s Asia-Pacific headquarters and also serves as a regional head office for five out of six of the bank’s key business lines including global markets, private wealth management, asset management, private and business clients, and global transaction banking.

‘As we’re experiencing strong growth across all facets of our business, both in Singapore and in Asia, we’re strongly focused on our recruitment and staff retention efforts across the business,’ added Mr Tan.

Deutsche Bank is the latest multinational company to move to properties under management of the SLA. Other tenants include Foster Wheeler, a US engineering and construction services consultancy, and electronics giant LG.

Source : Business Times - 10 Mar 2008

Mortgage war breaks out as DBS and UOB offer new rates

Banks focusing on specific targets, waging battles without fanfare.
THE mortgage war finally erupted, as Singapore banks responded to a dramatic rate cut by Maybank three weeks ago - with one even offering a zero per cent package.
That attractive deal comes from United Overseas Bank (UOB), which has relaunched a package with a teaser first-year rate at rock-bottom.
DBS Group Holdings has also rolled out new rates on several packages, including a fixed-rate deal that claims to be the lowest of its type here in Singapore.
Unlike the fanfare that marked the rate war in 2003, though, the battle now is focused on specific targets and is being kept under the radar.
Banks are quietly offering promotional rates on a case-by-case basis and tend to target clients with loans of well over $300,000. While the market for new mortgages has softened, banks are still busy.
‘A lot of customers are looking to refinance their loans taken less than a year ago, when interest rates were much higher,’ Mr Bryan Ong of mortgage consultancy bcgroup.com.sg said.
Maybank sparked the war with an aggressive three-year, fixed-rate package at 1.68 per cent for the first year. This promo, which ends on Monday, has sent customers ‘rushing to submit loan applications’, said Maybank consumer banking head Helen Neo.
About 80 per cent of the applications were for buying private properties with an average loan size of about $675,000. Maybank is now ‘reviewing the rates’.
Other banks have not taken the move lying down. Most have tacitly matched - or undercut - Maybank’s rates.
DBS has a new three-year, fixed-rate package with an aggregate rate of 7.64 per cent - lower than Maybank’s 7.74 per cent. It offers a 1 per cent cash rebate in the first year.
UOB has revived its FirstZero Home Loan - a three-year, fixed-rate package available ‘only for a limited period’. The bank launched this in 2003, but it was quietly taken off the market last year amid interest rate volatility.
FirstZero is now back with a zero per cent rate on the first year, 3.6 per cent on the second and 4.5 per cent on the third, making a three-year aggregate rate of 8.1 per cent.
It has hefty penalty charges and a three-year lock-in period.
Standard Chartered Bank (Stanchart) actually moved before Maybank, cutting its three-year, fixed-rate package from 3.58 per cent to 2.98 per cent in January. It also cut its two-year package by 0.55 of a percentage point to 2.88 per cent.
DBS countered this week with a 2.88 per cent average annual rate for a three-year package and a 1 per cent cash rebate on the first year.
This three-week promotion is only for customers with loan quantums of at least $300,000.
OCBC Bank had not joined the fray, with chief executive David Conner saying last month that a mortgage rate war was unlikely.
OCBC said ‘from time to time, it offers loan packages with promotional rates that are highly competitive compared to other players’.
The most popular packages now are those linked to transparent rates, like the Singapore Interbank Offered Rate (Sibor) or swap offered rate (SOR), comprising the Sibor plus a bank’s lending costs.
These are official, regularly published industry rates customers can check to see how their packages are structured.
Riding on this interest, DBS has just cut by half its rate for its 12-month, two-year, Sibor-linked loans to 0.5 per cent for the first year.
Nearly 80 per cent of Stanchart’s new customers in recent months have taken up its package offering SOR plus 0.5 per cent for the first year.
The SOR has dropped from about 3 per cent last year to about 1.5 per cent currently.
Stanchart’s head of consumer banking, Mr Ajay Kanwal, said: ‘With the interest rate environment expected to soften further, customers of SOR-linked packages will benefit even more.’
UNDER THE RADAR
Banks are quietly offering promo rates on a case-by-case basis and tend to target clients with loans of well over $300,000.
MOST IN DEMAND
The most popular packages are those linked to transparent rates, as customers can check to see how they are structured.
Source : Straits Times - 8 Mar 2008

Hong Leong Bank eyes 10% home loans growth

It is confident of hitting target for cash-back product

Hong Leong Bank is aiming for 10 per cent growth this year in its housing loans segment, which currently has about 130,000 clients.

As part of its efforts, the bank yesterday introduced a cash-back home loan product which it said enables customers to save more on interest payment.

Chief operating officer for personal financial services, Moey Tan, said the bank was confident of achieving the target of RM1 billion (S$436 million) receivables for the new product by year-end as it was the only one in the local market to give cash rebates to home loan customers.

'The 10 per cent cash-back will automatically be credited into the customer's savings or current account annually from year six onwards,' she said. Ms Tan said for a RM200,000 loan, the first payment is RM1,000 and each year the customer will receive a percentage of the cash-back amount until the end of loan tenure.

The cash-back home loan features include a repayment option and up to 90 per cent margin of financing, applicable for completed properties with a minimum loan amount of RM200,000.

Hong Leong Bank's group managing director Yvonne Chia said housing loans today accounted for 58 per cent of total household debt and the commitment was long term, averaging from 20 to 30 years.

'The cash-back concept was tested and validated through independent research. . .' she said. -- Bernama

Source : Business Times - 4 Mar 2008

Banks woo cash-rich en bloc residents

Talks held at Farrer Court to promote financial services to residents after estate's $1.34 billion collective sale

WHERE there is money, businesses will pursue it. So it is not surprising that at least two financial players, Citibank and IPP Financial Advisers, have held talks at Farrer Court to woo residents with their services.

CITIBANK STAFF posted in the void decks of Farrer Court blocks invited residents to finance-related talks after the estate was bought by developer CapitaLand. At the talk, the Citibank officers spoke about financial management services for affluent customers. IPP Financial Advisers also held a talk there. -- ST PHOTO: WANG HUI FEN

Residents netted $2.15 million on average after the estate had a collective sale in June last year. The 618-unit estate in Farrer Road was bought by developer CapitaLand for a record $1.34 billion. The original owners paid a little over $100,000 for their units 31 years ago.

The wooing of the Farrer Court community began four months ago with the unusual sight of Citibank officers posted in the void decks. They invited residents to two finance-related talks, complete with a free buffet dinner, in the estate's function room.

When The Sunday Times attended one talk last Wednesday evening, we saw bank staff handing out booklets to more than 150 residents. The staff spoke about financial management and Citigold services targeting more affluent customers.

Citibank said such talks were held on an ongoing basis in private residences, including The Berth by The Cove in Sentosa Cove in January.

Many residents liked what they saw. As Mr Aeden Tang, 49, a bank officer, said: 'Other banks didn't take the trouble to reach out to us, unlike Citibank.'

Another resident, a 56-year-old retiree who wanted to be known only as Madam Tan, agreed: 'It's a win-win situation because many residents are old and can't shop around for a good bank.'

Independent financial adviser IPP also held a talk there yesterday which drew about 25 people.

Residents said Citibank's more aggressive tactics worked better than IPP's. The latter had put up a banner to advertise its talk.

Other banks such as Standard Chartered have also reached out to those living in private residences.

None of them or IPP wanted to reveal how much business the talks had generated. OCBC, however, stopped such roadshows two years ago as it felt that they encroached on residents' privacy.

Source : Sunday Times - 2 Mar 2008

$5.25b credit facility for Marina Bay Sands

DESPITE volatile global credit markets, another giant syndicated loan deal has been completed in Singapore.

The deal is a $5.25 billion credit facility to finance the construction of the Marina Bay Sands integrated resort (IR).

It follows Genting International's success earlier this month in lining up funding of $4.19 billion for much of the building of its Sentosa IR.

Las Vegas Sands Corp's senior vice-president for finance, Mr Scott Henry, was in town yesterday for the announcement of the Marina Bay Sands deal, allowing him to meet executives from the participating banks.

More than 30 banks, including Goldman Sachs, Standard Chartered Bank, Lehman Brothers Finance Asia and the three local banks, are involved as coordinators of the financing.

The credit facility is the largest private Singapore dollar-denominated financing ever completed.

Mr Henry said the completion of the credit facility underscores both the attractiveness of the Singapore market, and the enthusiasm and confidence the financial community has in the success of the IR.

Participating banks said the response to the credit facility had been encouraging, especially in the light of the turmoil in credit markets.

'This demonstrates the participating banks' confidence in Singapore and the Marina Bay Sands project,' said Mr Elbert Pattijn, the head of specialised corporate and investment banking at DBS Group Holdings.

Source : Straits Times - 29 Feb 2008

Property players sweat over lending squeeze

Banks batten down hatches amid global turmoil and as big deals suck liquidity

The squeeze is on. Banks have tightened financing for property investment deals, which include big transactions like sales of office blocks and development sites. This, in turn, may keep some buyers from participating in the market, industry players have told BT.

It's also taking longer to wrap up property sales deals these days as securing funding becomes more of an issue - and this could be a drag on investment sales.

Bankers cite two main causes for the tightening. The turmoil in the global financial market has led to increased awareness of risks all round, and several mega transactions in the past 12 months here have left less liquidity available for others.

Says Tan Teck Long, DBS Bank managing director, corporate and investment banking: 'There are a couple of large deals such as the integrated resorts (IRs) which have soaked up a fair bit of liquidity.'

Yesterday, Las Vegas Sands Corp announced the completion of its $5.25 billion loan syndication for the Marina Bay Sands IR, the largest deal of its kind here.

Brad Nelson, global head of commercial real estate, Standard Chartered Bank, agrees that the big deals had been sucking liquidity out of the market. 'Banks only have a certain amount of capital base,' he points out.

Banks' exposure to property-related loans is capped by law at 35 per cent of their total loans, to keep risks from the industry in check. This does not include mortgages for owner-occupied properties.

Meanwhile, banks have become more cautious and are giving smaller loans relative to a property's valuation than, say, 12 months ago. This serves to provide them with a greater buffer in the event of a fall in property values given the weaker sentiment in the Singapore property market today.

Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says that about a year ago, banks may have given loans of up to 75 per cent of valuation for income-producing assets like office blocks. Today, the figure may be closer to 60-65 per cent.

Things are even harder for relatively unseasoned, smaller players buying residential development sites. They face greater scrutiny these days before banks give them loans, BT understands.

'Financing for real estate projects has definitely tightened, especially since last quarter. This is essentially because of tighter liquidity brought about by limited appetite in the capital markets, due to current market developments,' says Paul Kwee, Citigroup Singapore corporate bank director and head of real estate.

Lending amounts are more conservative now and covenants tighter, he says.

And despite the decline in Singapore dollar interest rates, the margins that are added to the floating interest rate reference are wider today, observes Mr Kwee. Margins are wider by 50-100 basis points now compared to last year, say bankers. Property sources say that while big established developers can still secure financing for purchases of development sites with relative ease, things are less rosy for smaller players.

Maybank head of business banking Lee Hong Khim acknowledges that his bank hesitates to finance new players whose core business is not in property development.

Mr Lee adds that Maybank is 'more selective in the projects we finance; the location of the project is an important consideration as well'.

Giving his take, Citi's Mr Kwee says: 'Smaller players may find it harder because they have fewer financing options available to them as compared to the big boys who may also be able to tap the convertible bond or Sing-dollar bond market, for instance.'

But Mr Nelson of Stanchart says that 'when liquidity is tight, lenders will normally take the position of supporting their existing relationships . . . regardless of whether they are SME (small and medium enterprise) or wholesale customers'.

Another outcome of banks becoming more cautious in evaluating loan applications is that it's taking longer to complete property investment sales deals, says JLL's Mr Lui.

The investment head of another major property consultancy group feels that the tighter financing environment could change the profile of institutional property buyers. 'We may see greater participation from core funds, which assume lower risk, lower returns, and lower debt, and less participation from opportunity funds, which assume higher risks, higher returns and higher debt.'

Market watchers point to an extreme recent example, when UK-based New Star International Property Fund made a pure-cash (zero debt) acquisition of One Phillip Street, an office block in the Raffles Place area, for $99.02 million.

Funds that need to assume higher leverage to achieve their investment returns may find it difficult to buy property assets in Singapore - and their numbers may dwindle.

Source : Business Times - 29 Feb 2008

UOB's Q4 net profit down 5.7% to S$506m

United Overseas Bank (UOB), Singapore's second-biggest lender by assets, posted a 5.7 percent fall in its fourth-quarter profit, as turmoil in credit markets led to more write-downs.

The bank reported net profit of S$506 million for the October-December period, down from S$537 million a year ago.

UOB, which had a smaller exposure to risky debt compared to local industry leader DBS, made fresh provisions of S$128 million for its exposure to debt derivatives and long-term investments in the fourth quarter, bringing its total write-downs in the year to S$300 million.

Net interest income in the fourth quarter was S$743 million, up 5.9 percent from S$702 million a year earlier.

Non-interest income was S$532 million, up 2.9 percent from last year's S$517 million.

In a statement, UOB chief executive Wee Ee Cheong said 2008 "looks set to be a challenging year".

World financial markets have been battered since last August by fallout from a crisis in the US sub-prime, or high-risk, loan sector which forced commercial banks to tighten lending criteria leading to a credit crunch.

Banks around the world suffered multi-billion-dollars losses linked to sub-prime loans given to US homebuyers with risky credit histories. - CNA/ir/ch

Source : Channel NewsAsia - 27 Feb 2008