US Fed rate hikes set to lift Asean banks, but are unlikely to cool regional property markets: DBS

Banks in Asean will generally benefit from United States Federal Reserve interest rate hikes, a team from DBS has said, in a report predicting "minimal" impact on loan growth.

They added that changes in interest rates are unlikely to be the wet blanket when it comes to property demand, with issues such as affordability and loan-to-value ratios being more pressing.

But the analysts cautioned that, with earnings expected to lag the Fed rate hikes by three to six months, Indonesia banks will take a hit to their bottom line as deposit rates tend to be re-priced faster than loans are.

"As such, a rate hike would likely lead to weaker net interest margins for at least two to three quarters before normalising," they said of South-east Asia's biggest market. "This assumes loan yields are re-priced correspondingly, which is subject to market competition."

As for whether consumers will bite, the DBS analysts noted that the impact of higher interest rates on affordability is "only out of the many issues facing the property sector in Asean".

Malaysia, for example, is expected to face a softer climate for real estate because of a large inventory of unsold private housing stock.

"While the government could ease home ownership for first-time home buyers via financing initiatives, the property sector would require a comprehensive review to the existing housing development policy to rectify the structural problems," the team added, ahead of a planned housing scheme under Malaysia's new leadership.

Meanwhile, in Indonesia, home buyers mainly contend with affordability and down payment requirements, according to the DBS watchers, while reservation sales in the Philippines reportedly remain high on strong interest from foreign investors