Singapore banks are in better shape than their Hong Kong counterparts, even though consumer debt has surged in both cities, a new report has found.
The report, by Barclays Capital, said Singapore banks are in a stronger position as they have more defensive asset qualities than Hong Kong banks.
Consumer debt has grown rapidly in the wake of the global financial crisis, fuelled by plentiful cheap credit in a low-interest rate environment. This has sparked regulatory concern.
But the report, issued yesterday, also acknowledged that the pace of growth of Singapore's household debt to total economic output has stabilised since the Total Debt Servicing Ratio framework was rolled out last June.
The report said Singapore banks stood out for defensive qualities such as lower loan size limits and greater discipline in pricing unsecured loans.
Unlike in Hong Kong, where non-housing personal loans are mostly unsecured, growth of other consumer debt here has been driven by secured lending - backed by deposits or shares as collateral.
Also, the debt burden here tends to be lower as the size of unsecured personal loans is capped at four times monthly salary for those with annual income greater than $30,000, and even lower for low-income earners.
Hong Kong banks, in contrast, can offer such loans up to 18 times monthly income.
Singapore's household debt to total economic output surged to 75 per cent last year, up from 63 per cent in 2008, but is still below historical highs of more than 90 per cent in 2002 and 2003. But in Hong Kong, it hit a record high at 62 per cent last year.
While mortgage credit has slowed substantially after several rounds of property cooling measures both here and in Hong Kong, regulators worry about the continued surge in non-housing personal loans, the report said.
The size of loans and advances granted for other private purposes jumped to $74 billion in Singapore last year, up from $46 billion in 2007. In particular, consumer debt to gross domestic product here hit 20 per cent last year, but is still off the historical high of 25 per cent in 2003, and has stabilised over the past year.
Even so, Singapore households are more defensive than Hong Kong households in the event of an economic downturn or liquidity outflow, said bank analyst Sharnie Wong of Barclays' Asia Ex-Japan Equity Research. She cited the Republic's higher household savings rate (one of the highest in the world at 24 per cent), access to the Central Provident Fund to repay mortgage debt, and a high proportion of liquid household assets in currency and deposits.