Singapore Banks Headache & The USDSGD

July 15 (Bloomberg) — Singapore’s June home sales rose for
a second month to the highest since a March record as Moody’s
Investors Service cut its outlook for the city’s banking system
on concern that borrowing costs may climb.
Home sales rose 24 percent to 1,806 units last month from a
revised 1,459 units in May, the Urban Redevelopment Authority
said on its website today, the highest since 2,793 units in
March. Moody’s said the “rapid” loan growth and rising
property prices in the city adds more risk to credit quality.
Record home prices amid low interest rates raised concerns
of a housing bubble and prompted the government to widen a four-
year campaign in January to curb speculation prices in Asia’s
second-most expensive housing market.

“The operating environment for Singapore’s banking system
has been favorable for an extended period, with low interest
rates and strong economic growth domestically and in the
surrounding region,” Gene Fang, a Moody’s senior analyst, said
in a statement today. “With the potential risk of a turn in the
interest rate cycle, we view strong asset inflation and credit
growth trends as vulnerabilities, as this combination would
likely cause credit costs to rise from their current low base.”

I managed to get my hands on the dreaded chart !!! (illegally obtained photograph and published without permission)

Why is Singapore banking assets ie LOANS going at 260% of GDP ???

Not to worry. This is the sort of number that is typical of “safe haven” countries like HongKong and Luxembourg. That is because bank deposits go at 400% of GDP and funding is ludicrously cheap.

Thus, OCBC comes out to say something real stupid.

“July 16 (Bloomberg) — Slumping sales of new corporate
bonds denominated in Singapore dollars and yields jumping to a
more than two-year high suggests opportunities for finding
value, according to Oversea-Chinese Banking Corp.”

They are asking people to buy because of supply constraints and not because of value. What does that ultimately lead to ?

BUBBLE !!!!

And by the OCBC analyst’s own admission : ” “Singapore dollar bonds were being issued at very tight
levels prior to the market recent closure,” Jerry Gwee, a credit strategist at OCBC, said in an interview yesterday. “As the market reprices with expectations of the Federal Reserve’s tapering plan, primary issues may come again at more attractive yield levels for funds and private banks.” ”

It means that everything so far has been expensive !! And once the new issues come, the old ones will be re-priced !

Singapore’s importance as a financial services centre/hub can only be demonstrated in this graph showing 9 out of 12 months of declines and 4 consecutive months of decline starting in Feb this year.

So, why do you think they are recommend investors to stay long the SGD ?

” July 17 (Bloomberg) — Investors should bet on gains in
Singapore’s dollar as island’s policy makers will tolerate
appreciation to curb price pressures, according to Credit Suisse
Private Banking and Wealth Management.”

It is not INFLATION, silly. They need a strong SGD so the deposits will keep coming.

It is the 260% they need to keep alive.

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