Housing market risk to banking sector containable
The banking sector’s risk from a cooling housing market might be contained, as prudential measures and the likely reversal of an accommodative monetary policy have helped check property speculation and the buildup of systemic risk, Fitch Ratings Ltd said yesterday.
“The sector’s household debt servicing would remain manageable under a severe stress scenario of a 200-basis point interest rate hike, so long as low unemployment is sustained,” said Jonathan Lee (李信佳), Fitch’s senior analyst on financial institutions.
The sharp increase in housing prices, which appeared to have peaked in the final quarter of last year, did not stem from credit expansion, Fitch said, adding that mortgage growth has been tepid since 2008.
Self-occupancy property loans dominate banks’ mortgage portfolios and such lending has very low risk, Fitch said.
Instead, low mortgage growth and deregulation related to overseas risks — mainly in China — have led to an increase in offshore exposure, Fitch Ratings said.
Loans at offshore banking units might climb to about 19 percent of total loans by the end of next year, from 8 percent at the end of 2009, the agency forecast.
Risk profiles would rise if banks’ profitability and loss-absorption buffers do not keep pace with higher credit risks and operational challenges, Fitch said.
