Credit crisis looms as sibor rises above 1%

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An honorable member of the Coffee Shop Has Just Posted the Following:

CREDIT CRISIS LOOMS AS SIBOR RISES ABOVE 1%

Post date:
25 Mar 2015 - 10:23am








Singapore's interbank offered rate at 3 month interval (SIBOR) has risen passed the psychological barrier of 1% today, prompting fears of rising mortgage payment for HDB owners.
Just only a month ago on 2nd February, SIBOR rate was only 0.67863%. Today the key interest rate has risen by 50% to 1.00129%. The direct impact of this sharp spike will cause a $300,000 loan (the typical loan amount for a HDB 4 room flat) to increase monthly payment by $50.
Back in 2010, SIBOR rate was near 0% and many banks offered mortgage rate of current 3mth SIBOR + 0.75%. Many Singaporeans were attracted to mortgage interest rates as low as 1%. Private property owners and others who are ineligible for the HDB concessionary loan at 2.6% will be the ones trapped in this increase in mortgage payment. It is likely to see many properties both HDB and private default on payment as the interest rate trend upwards.
The next psychological barrier for SIBOR will be 1.5%, and based on current rate of increase, it will match HDB's 2.6% concessionary rate as soon as June 2015.






Singapore residents are also increasing becoming over-leveraged with credit card debt totalling $4.37 billion as of end December 2014 [Source]. The people are not the only ones over-leveraged, corporations and developers are borrowing too much and it seems like a rise in interest rate is going to hurt every borrower very badly.
As condo sales has plummeted 60% since mid 2013, it is very likely many property developers and builders start to struggle and some may go bankrupt by June 2015.For UOB, it is currently suing Indonesia conglomerate Lippo Group and seven others for $181 million [Source] over the purchase of 38 units at the Marina Collection in Sentosa. It is unknown if similar property loan-related problems are surfacing in other Singapore banks like DBS and OCBC.
A full blown credit crisis will happen if more people and companies start defaulting triggering a lending scare by banks who are very likely going to write off a lot of bad debt, causing some people to go bankrupt and if the same impact is seen on the banks themselves, we may see a major credit crisis in Singapore.


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