Can higher rates come to the rescue?
Singapore’s largest lenders will have to grapple with extremely low loan demand in 2016, according to a report by CIMB.
In November 2015, total system loan growth dropped to 1.4%, compared to 9.1% in the same period in 2014. Overall loan growth was dragged by the contraction in business loans, compensated by growth in property loans.
Business loans saw YTD contraction in other loans (-8.0%), commerce (-5.1%), and manufacturing (-2.3%). Meanwhile, growth came from agriculture (+6.5%) and business services (+5.0%).
Consumer loans were dragged by car loans (-9.1%) and credit cards (-2.5%); growth came from loans to individuals (+4.0%). Property loans, comprising building & construction (+18.6%) and mortgages (+3.5%), propped up overall loan growth.
Despite slowing loan growth, CIMB analysts believe that the positives of a higher interest rate environment on NIM will compensate for lower loan demand.
“1H15 saw the impact of a higher SIBOR and SOR benefiting the banks’ margins on floating rate loans. Based on our channel checks, new fixed rate mortgages were disbursed at a higher interest rate in Dec 2015, which will provide NIMs with another leg up in 4Q15 onwards,” CIMB said.
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