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Singapore market still healthy, cooling measures will not cause market to crash [10-07-2013]  
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There will probably be a correction in property market prices but a crash is unlikely, according to OCBC Bank chief executive officer Samuel Tsien.

Part of the reason for its resilience was because the Singapore market held a certain appeal to investors, he said.

Still, rising interest rates and cooling measures would have an impact, Tsien told The Straits Times on the sidelines of a major China forum here yesterday.

“As a result of the different measures imposed by the Government in making sure that speculative demand has been removed, there will be a slowdown in market activities,” said Tsien.

“I don’t think there will be a crash in the market. There will be some downward adjustment to prices but that is healthy in the long-term”.

The Government has instituted seven rounds of property cooling measures since 2009, with the latest round in January.

Other moves aimed at reducing the froth in the markets included lowering limits on loans and raising stamp duties.

The measures had worked to stabilise prices.

In the three months to June 30, prices for mass-market apartments rose 3% from the previous quarter.

But prices of homes in the city centre dropped 0.2% in the second quarter, after growing 0.6% in the first.

The central bank imposed curbs on loans to prevent borrowers from becoming over-leveraged.

The United States Federal Reserve has indicated that it would start to slow the pace of its monetary stimulus programme and eventually raise interest rates.

The normalisation of rates would help OCBC, said Tsien.

He said that the bank would gain from normalising interest rates, as “it’s going to be beneficial to banks with a significant amount of Casa (current account, savings account) balances”.

This is true for OCBC, as its “Casa balances represent about 51% of our total deposits.”

Casa accounts combine savings and checking accounts to encourage consumers to save with banks.

A higher Casa ratio would mean that a bank has access to a cheaper source of funds, because it pays out less interest on Casa and can lend at a higher rate.

“That will benefit OCBC Bank because lower-yielding deposits or zero interest rate deposits will be able to make some money as a result of the rising interest rates, by lending that money out to the market.”

OCBC was among the banks here to be censured by the Monetary Authority of Singapore (MAS), and most were told to set aside extra fund to be parked at MAS at zero interest rates.

The amount that OCBC Bank has to deposit as additional reserves is between US$700mil and US$800mil.

Tsien said that the impact was not significant, as it related to the opportunity to earn interest on the amount.

He added that the bank had introduced a series of new checks to tighten the rates submissions process.

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