More than 17,000 applications to defer mortgage payments as virus hits home

Singapore

MORE than 17,000 consumers have applied to defer their mortgage repayments, in a nod to the escalating impact of the virus outbreak.

These numbers, collated by The Business Times across seven major retail banks here, are estimated by economists to be about 3 per cent of total mortgage loan values here, and an estimated 2 per cent of households that still have outstanding home loans.

At least 3,000 bank customers have also applied to convert their outstanding balances in personal unsecured credit into term loans at a reduced rate of interest, as offered based on recent relief measures.

The observers told BT that the spike, while not considered high in absolute terms, shows that a broad spectrum of the economy and households are hurting from the Covid-19 outbreak, and expect numbers to rise amid higher job losses to come and rounds of pay cuts.

"The applications could well double if these (circuit breaker) measures are extended by another two or three months," Chua Hak Bin, a senior Maybank Kim-Eng economist, told BT.

The Monetary Authority of Singapore (MAS) and other industry bodies guided that from April 6, all banks and finance companies here must allow deferments through to the end of the year of either principal repayments or both principal and interest payments of qualifying mortgages. The applicants do not need to show an impact from Covid-19.

In taking a payment holiday, consumers will see interest accruing on the deferred principal amount, though no interest will be charged on the deferred interest payments.

OCBC's head of consumer financial services Sunny Quek said the bank has seen requests "steadily coming in" as the economic fallout deepens. "People who have, as a result, lost their jobs or have had their pay cut will appreciate any help they can get to ease their pressing cashflow needs," said Mr Quek.

OCBC has received more than 3,000 requests to defer residential property loans, and has approved over 90 per cent of eligible applications. UOB received nearly 4,500 applications.

DBS, the dominant mortgage player in Singapore that controls about a third of the home loan market share here, saw more than 8,000 requests to defer home loans as of April 14. About 40 per cent of them have been approved.

Going by DBS' numbers, the deferral requests are a dramatic jump in recent weeks. DBS told BT on April 3 that at that point, just about 900 customers had applied for DBS' six-month principal repayment moratorium for mortgage loans that the bank itself rolled out in February.

To be sure, MAS' guidelines that kicked in on April 6 not only standardised mortgage deferment terms across the industry, but also removed the stigma of applying for relief.

Maybank said it had received about 2,000 applications for a mortgage moratorium. HSBC, Citibank and Standard Chartered declined to reveal numbers, saying only that they have received a pipeline of enquiries on various relief programmes.

A Standard Chartered spokesperson highlighted that some of the applicants seeking mortgage relief work in the food and beverage (F&B) industry, as well as in the retail sectors.

While most other banks were unable to share the typical profile of their applicants, CIMB private banking economist Song Seng Wun said they likely work in "sectors earliest and most badly affected, like tourism, aviation and F&B".

Maybank Kim-Eng's Dr Chua considered the numbers "quite material", even as he expected them to jump further. He estimated that the deferment applications translate to about 3 per cent of total mortgage loan values, by estimating an average loan size of S$400,000. Latest bank lending figures showed that the total outstanding mortgages stood at S$201 billion as at February 2020.

"The large numbers asking for loan relief suggest that the (circuit breaker) measures and partial lockdown are hurting a broad spectrum of the economy and a large number of households," said Dr Chua, referring to Singapore's latest set of safe-distancing measures.

DBS economist Irvin Seah estimated that about 60 per cent of the 1.25 million households in Singapore still have mortgages to service. That brings the current applications to just about 2 per cent of households that still have outstanding home loans.

But Mr Seah said not all who applied for relief are in a dire situation yet and may "just (be) taking preemptive steps to do financial planning".

"It is good that people are planning ahead and looking at these schemes," he said. "If people are complacent, the day they are hit with liquidity crunch, individuals file for bankruptcy and businesses go belly up, that will be worse."

As at Q3 2019, housing non-performing loan ratio in Singapore stood at less than 0.5 per cent, November's financial stability review report from the MAS showed.

Still, there is a "potential risk" in the case of multiple loan defaults down the road, said Andrew Gilder, Asia Pacific banking and capital markets leader at EY. "That will put a lot of downward pressure on real estate values (later)," he added.

Relief measures according to the guidelines from MAS also give consumers who have lost at least a quarter of their monthly income after Feb 1 the option to convert their outstanding balances on personal unsecured credit to term loans. These term loans are structured at reduced interest rates capped at 8 per cent, as compared with the usual 26 per cent charged on credit cards. The term can be up to five years.

With the 3,000 applications so far representing less than 1 per cent of the total number, it is less worrying than the mortgage situation, said Dr Chua, who estimated there are about 1.8 million credit card holders here.

DBS received more than 1,200 term loan relief applications from customers who have existing unsecured credit card or CashLine loans. This was followed by Maybank, with more than 900 applications by customers with credit card and CreditAble loans with the bank.

UOB has seen nearly 600, while OCBC has more than 300 applications thus far. In addition, OCBC's Mr Quek said his bank has reduced the minimum credit card repayment from the market practice of 3 per cent to 1 per cent, and is also allowing renovation loans to be deferred.

HSBC, Citibank and StanChart declined to give exact figures, but HSBC Singapore's head of retail products Ranojoy Dutta said the majority of its customers' applications are "centred on unsecured credit facilities, including credit card repayments and insurance premium payment deferment".

Analysts believe that the conversion of unsecured credit to term loans will not make a significant impact on the banks. EY's Mr Gilder pointed out that this move will cement customers' relationship with the bank as the exposure becomes longer-term. "If there's an opportunity to reprice some of the portfolio as it moves to term facilities, then that can help the bank claw back some of that margin loss," he said.

He added that Singapore banks are well-capitalised, have good risk management and are playing their part in crisis recovery by extending credit to clients. "This crisis is not a banking crisis but a broad market growth challenge," he said. "The banks are taking on more risk, but I think they are doing that in a way that is balanced."

But observers concur that the outlook ahead is clouded, amid uncertainties over the reach of this virus.

CIMB's Mr Song noted: "Given that this is going to be the worst recession for Singapore's history, and it is still unfolding, it will be hard to quantify or forecast the impact on households and businesses at this point."

As at 12pm on Sunday, Singapore has had a total of 6,588 virus cases, the highest reported number among Asean nations. To be clear, Singapore has reported significantly fewer deaths. The recent spike in cases comes as a large number of work permit holders living in foreign worker dormitories have been infected.

More than 2.3 million virus cases have been reported worldwide. More than 161,000 people have died from it.