Singapore banks hit by depressed business loans.
While Singapore banks may be feeling celebratory that loan growth has recovered somewhat from the first half of 2015, business loans will continue to be a party pooper. Singapore banks are expected to have a rough third quarter as business loans remain depressed amid slower economic growth locally and across Asia.
“With the economy mired in the doldrums – real GDP growth reflected a contraction of 4.6% in quarter-on-quarter, seasonally adjusted, annualized terms in the second quarter of 2015, we see little prospect of a significant pick-up in lending growth over the coming quarters,” says BMI Research.
Following a forecasted dip in loans in the second half of 2015, BMI Research forecasts overall loan growth to come in at just 3.0% for the full-year compared to the faster 5.8% growth clip in 2014.
Analysts point to anemic business loan growth as a major headache for Singapore banks. Business loan growth has been steadily moderating since last year’s double-digit pace. “Macroeconomic headwinds in Singapore and regional countries have dampened business sentiment, causing system loan growth to slow to 3.5% YoY in May,” says the RHB Singapore Research team.
After a challenging second quarter in which Singapore banks saw slower loans and market related fee income, and higher asset quality risk, the third quarter offers little comfort that a rebound will occur. “We expect 3Q15 to be tougher quarter-on-quarter for the Singapore banks,” says Sharnie Wong, analyst at Barclays.
Wong cites slower loan growth, moderated market-related fee income and potentially higher credit costs to continue to act as headwinds for the sector. While the rise in SIBOR could provide some breathing room for Singapore banks, Wong expects some asset quality deterioration in their ASEAN loan books.DBS has already pointed to mild deterioration in Hong Kong and Singapore SMEs, and among the three banks, DBS seems to hold the rosiest prospects because of its dominant deposit franchise in Singapore, says Wong.
Singapore banks will also need to grapple with possible weakness in housing loans. “Weakness in the residential property market continues to act as a key drag on demand for housing loans, and we expect the factors behind this correction to persist over the coming quarters,” says BMI Research.
“Both rental and purchase demand are likely to continue to weaken over the coming quarters, and a continued fall in the former will exacerbate the downturn in the latter,” it added.
BMI Research reckons that the onslaught of new units entering the market over the next two years coupled with the ongoing slowdown in skilled-labour immigration will lead to a soft rental market. This, in turn, will undermine demand for investment properties.
Who made it to the SBR’s list?
There are no significant changes in this year’s ranking of largest banks based on total number of employees, except for DBS Bank now tied with Citibank on the first spot with 10,000 employees. From being ranked third with only 7,800 employees when SBR started the list in 2013, DBS gradually moved up the ladder in the succeeding years. It landed on the second spot last year with 8,000 employees, replacing UOB.
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