High employment rate could curb fears of runaway housing NPLs in Singapore

It's one of possible additional safety nets.

While property weakness has been noted to be a valid but modest concern for Singapore banks, it has also been observed that various safety nets have been put in place to address this fear, and that there are possible additional forms of protection.

According to a research note from Maybank Kim Eng, a benign credit environment should persist.

In line with this, in addition to some protection afforded by the anti-speculation measures, support is expected from various factors, such as continued job creation.

Here's more from Maybank Kim Eng:

Continued job creation, spurred by a modest 3% GDP growth for Singapore. As long as employment remains high, there is little reason to expect runaway housing NPLs.

The strong financials of property developers, which are in better shape than on the eve of the 2008-09 global financial crisis.

Financially stronger developers would imply a lesser need for aggressive price cuts that could dampen market sentiment.

Our expectation of a gradual and modest increase in interest rates. We project that the 3-month SGD SIBOR will be unchanged at 0.4% through 2014, before rising to 1.0% by end-2015 and 2.0% by end-2016.

A gradual and modest increase should allow the market to digest the impact. Furthermore, banks are already underwriting new housing loans with higher benchmark rates (3.5% for residential, 4.5% for non-residential) than prevailing rates.

This should protect their portfolio quality as interest rates rise.