Reply to PQ on local FIs exposure to US sub-prime mortgages
Question No. 377 Notice Paper No. 247 of 2007 For Oral Answer
For Parliament Sitting on 17 September 2007
Name and Constituency of Member of Parliament Dr Lily Neo, MP for Jalan Besar GRC
_____________________________________________________________________________________________ Question To ask the Senior Minister what is the extent, if any, of our local financial institutions being exposed to the United States sub-prime mortgages and if so, what is this amount and how much write-offs of these loans are estimated.
Mr Tharman Shanmugaratnam, Minister for Education, Second Minister for Finance, Monetary Authority of Singapore: Dr Neo asked about the exposure of our local financial institutions to the US sub-prime mortgages, and what the write-offs of these loans are likely to be.
Our local financial institutions do not offer mortgages to sub-prime customers. They do, however, have investments in collateralised debt obligations (CDOs) that contain some US sub-prime mortgages. CDOs are essentially debt instruments that are backed by financial assets, which could include loans and bonds sourced from various jurisdictions.
The local banks have publicly disclosed that their total investment in CDOs amount to S$2.3 billion, of which 28% contain some US sub-prime mortgages. The local banks’ exposure to US sub-prime mortgages is therefore small in relation to their capital base. Even if we take the total value of these CDOs which contain some US sub-prime mortgages, the amount would be about 1% of the banks’ capital base. However, the affected CDOs are in fact well rated as they comprise mainly investment grade assets.
One of the local banks, DBS Bank, has also stated that it has a contingent line of liquidity support to a legal vehicle holding CDOs and that this facility has since been drawn upon. It has also stated that this vehicle does not have underlying assets comprising US sub-prime mortgages.
While the CDO portfolios of our local asset management companies contain some US sub-prime mortgages, these are managed on behalf of their clients, who are mainly institutional investors. The investment risks are borne solely by the latter, with no legal recourse to the companies.
Some of our local insurance companies have also invested in CDOs, but the amounts account for a very small proportion of their total assets.
The local financial institutions are continuing to monitor the situation and keep the MAS posted of their exposures.