Asia ' at the risk of the credit bubble emerging '

Esther Teo

The Straits Times

Date of publication: 22-03-2013

 

There are fears that a credit bubble could be emerging in Asia, including in Singapore, given the enormous expansion of loans, according to two new reports.

Credit "powerful" in different economies, has grown noted RBS analyst Sanjay Mathur yesterday.

The growth has expressed that Asia already too dependent on credit, while the build-up in household leverage in places becomes as Singapore could start to curb domestic demand, he noted. leverage refers to the ratio of debt to personal income.

The bank credit has risen, particularly analysis indicates in Hong Kong, Singapore and Thailand. The levels in itself might not seem daunting, but the pace of growth is troubling, said Mathur. A surge of credit over a short period can weigh on the asset quality as these economies interest or income shocks suffering, he noted.

In Malaysia, Hong Kong and Singapore, for example, household debt now more than 65 percent of the gross domestic product (GDP). Property is used in a lot of the household assets, so that a drop in property prices or a rise in mortgage rates can have serious consequences.

"Although banking systems in these countries are wealthy and we see no immediate problems, the risk is that a rise in interest rates, a slowdown in the growth of the household income or a decrease in property prices could restrain consumption growth," noted Mathur.

Singapore is regarded as one of the economies where such a risk could be a problem. Between the first quarter of 2008 and the third quarter of last year, household obligations here increased from 61% of GDP up to 74 percent. The corresponding increase in household wealth was concentrated almost entirely in real estate, with the share of financial assets remains stable.

Mathur noted that even though there is no immediate crisis on the cards for the region is, vigilance is required.

Coface credit insurance group listed in a report this week that expansionist monetary policy in emerging economies, since the global financial crisis of 2008 have sustainable growth generated in bank credit, to the point where bubbles form.

Disturbances in the prudential control have also played a role in contributing to this call, it added.

Economies in emerging Asia-Malaysia and Thailand and, to a lesser extent, South Korea, China and Taiwan-are most threatened, it said. But the emerging economies of Chile, Turkey, Russia and Venezuela are also experienced a credit boom or risk of one, noted.