S'pore banks have little exposure to ailing US commercial real estate: Experts

MAS monitors banking system exposure for financial stability purposes, they say

- Angela Tan Senior Business Correspondent

Local banks' exposure to United States property, including its ailing commercial real estate sector, is small as a share of the banking sector's total loan portfolio, and does not present systemic concerns, market observers said.

The Monetary Authority of Singapore (MAS) monitors the country's banking system exposure for financial stability purposes, they said, adding that the regulator's mission will see it continuing to monitor developments in the US for potential contagion effects on Singapore.

The US commercial real estate sector has been under pressure as interest rates have risen over the past two years.

As a result, many property developers are struggling to refinance their debts, forcing some banks to boost their reserves for loan losses.

About 14 percent of all commercial real estate loans and 44 per cent of loans on office buildings appear to be in a negative equity position, meaning the debt is greater than the property value, according to the US National Bureau of Economic Research. This increases the risk that borrowers will not repay and will default on their loans.

As a result, commercial property values have fallen by 22 per cent since the first quarter of 2022, when the US Federal Reserve began raising interest rates, while office prices have tumbled 35 per cent as demand for office space weakened following the adoption of remote work, according to analytics firm Green Street.

In 2023, MAS said an industrywide stress test affirmed that banks in Singapore have adequate capital and liquidity buffers to weather potential downside risks arising from severe macro-financial stresses.