In response to our article, 45% Foreigners – The Perfect Property Storm For Our Banks and Nation about the risks associated with housing loans to foreigners, our reader “a foreigner” left a comment we felt should be addressed briefly.

He commented: “If the risk is high then the banks should do their own diligence and set the rate for the loan accordingly. If they know these are risky people to loan to and still loan to them, the BANKS are letting greed cloud their judgement and they deserve to bite the bullet if things go south.

Singapore, Central Business District, CBD, Skyline

We can’t help but agree with his evaluation. Perhaps it is time for the banks themselves to start re-assessing their standing policy regarding these million-dollar loans to foreign nationals. Have the banks taken into account the loss of value of the collateral when things go bad? Who will be left holding the bill when the music stops?

While it is true that the government sets limits via financial policy and legislation, such as capital adequacy ratio (CAR), is it enough any more? A second opinion might be needed, and who better to ask than the banks themselves? We would think that they have a vested interest in keeping risks manageable, since it is the banks which would suffer the most when things “go south”.  By “banks”, we of course do not mean the banks per se, or even their employees, but the shareholders and investors. Thus, bank shareholders should ultimately be questioning:

  • Are decision makers such as the top executives, managers and credit controllers sufficiently motivated to protect the bank’s interest?  If so, how?
  • The executives are being highly rewarded when winning new loans for the banks, but what happens when these turn sour?  Remember the sub prime crisis in the United States?  The former bank staff seem rather unscathed relative to the banks and state.
  • Is it time to look into the bank remuneration system? Is there too much emphasis placed on rewarding revenue, such that the bankers are willing to look away when the question of risk is broached? Ignoring risk means more revenue during good times, and if amply rewarded for said revenue, they can afford to ”lose” their job during bad times.
  • Perhaps such executives should be criminally liable (fraud comes to mind) for putting the bank in a position of undue risk in their rentless pursuit of personal reward. At the least, this should be done before state funds are even deployed to preserve the interests of the nation.  (Remember, it is rather easy to raise profits, if business risks are ignored or factored out.)

 

Should banks limit their exposure on account of foreigners? Or do you think it is perfectly fine that they are allowed to pass the buck on to the unsuspecting shareholders, and ultimately on to our state to deal with, in the form of bail-outs? Should we allow such bank executives to recklessly maximise profits, risk be damned, for their own financial reward, and then leave their banks to absorb all the downside at a later date? Eventually, if enough banks fall prey, the state will have to step in to avert an even greater catastrophe.

Tell us what you think in the comments below, or reach us on our social media channels, FacebookTwitter, and Google+.

 

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