Healthy fundamentals continue to bolster Singapore's CRE loans. While Hong Kong office owners face high vacancy rates and a surge of non-core supply pushing down rents on older assets, the banks have curtailed CRE exposures and focus on lending to top-tier developers with low average loan-to-value ratios below 60%. Since 2024, they recognised some idiosyncratic borrowers as bad loans and set ample provisions (averaging 1.5% of total loans as of 1Q2025) as part of prudent risk management.
Defaults in Singapore banks' commercial real-estate (CRE) loans can stay low in 2H2025 despite being exposed to stress in Hong Kong, thanks to the banks' prudent lending to top-tier developers and tight risk controls, which have bolstered their robust asset quality. The banks' earnings can take material credit losses without depleting capital, our stress-test scenario shows.
The local banks’ CRE loans, which are largely in Singapore and Hong Kong, are set to stay resilient in 2H2025 with low defaults and limited systemic risk.
