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S'pore banks' sub-prime exposure low: credit Suisse

by Alvin Fo, The Straits Times, Aug 3, 2007

Singapore banks have a low exposure to the financial instrument at the centre of the United States mortgage market crisis, according to a Credit Suisse report yesterday.

The report said the three local banks have only about 3 percent to 5 percent of theiw equity in what are called "collateralized debt obligations" (CDOs).

CDOs are securities backed by a pool of bonds and loans, in-cluding mortgages and other assets. Investing in them can bring high returns. If the housing loans and other assets backing them falter, on the other hand, theses securities may draw huge losses.

Credit Suisse analysts Sanjay Jain and Anand Swaminathan reported that DBS Bank's CDO market exposure was less than $500 million, while OCBC's stood at around $600million.

The exposure in the US is far higher, with many lenders and other financial players there at risk over mortgages given to buyers with weak credit.

A housing slump in the US has sent home prices plunging and mortgage holders defaulting on their loans.

In response to the Credit Suisse reports, DBS told The Straits Times that its collateralized loan obligation and CDO portfolio stood at around US$850million (S$1.28 billion).

The bank's Asset Backed Security CDOs have various exposures to the US sub-prime mortgage market.

A DBS spokesman said DBS' exposure is insignificant relative to its capital position, adding that the bank "is comfortable with its investment portfolio".

UOB said its total exposure to CDOs is low – less than 0.3 percent of its total assets.

It told Reuters that most of its investments in CDOs are backed by investment-grade corporate credits, with only $100 million in Asset Backed Securities CDOs.

A spokesman said: "Our indirect exposure to the US sub-prime from the underlying securities in small. The bank has no direct exposure to the sub-prime market."

OCBC declined to comment as it awaits the release of its corporate resulting.

Industry experts say these figures suggest little cause for concern.

Daiwa banking analyst David Lum said: "From what banks have indicated, there's no area for concern, and I don't see the banks increasing their exposure."