3 factors weighing on credit appetite in Singapore

Systemwide gross loans for commercial banks have declined for three consecutive months.

Singapore banks will see a moderation in borrowing appetite in 2023, with loan growth likely to come at low-mid single digits, S&P Global Ratings said.

In a report, S&P Global Ratings’ Primary Credit Analyst Ivan Tan noted that systemwide gross loans for Singapore commercial banks have declined for three consecutive months since September 2022.

“This coincided with a spike in lending yields, which will continue to weigh on consumers and businesses this year,” Tan added.

Sue Ong, S&P Global Ratings' primary credit analyst, said three factors are weighing on the credit appetite in Singapore: property-cooling measures, recession risk for major economies, and China's reopening.

Ong said the September cooling measures, alongside rising mortgage rates, have hit prices for residential property, which, in turn, affected momentum in the market.

“A benchmark price index for private residential property edged up 0.2% sequentially in the fourth quarter of 2022, down from 3.8% the previous quarter. The Housing Development Board's resale price index for its flats moderated to 2.3% growth in the fourth quarter, compared with 2.6% in the previous quarter,” Ong said.

“Slowing momentum in property prices could hinder demand for mortgage loans--which account for approximately a quarter of total loans in Singapore,” she added.

Meanwhile,  fears of a recession in the major economies present further downside risks to credit demand, said Ong.

“Singapore's externally oriented economy relies significantly on final demand in the U.S. and Europe. Activity in these economies will likely slow later this year, weakening export demand for several key markets in the region,” she said.

China’s reopening, however, will offset some effects of recession risk and weaker residential market momentum.

“The country's reopening and rapid dismantling of its zero-COVID policy could offset some of the drag from the Western slowdown. Nonetheless, the net impact on export demand should generally be negative this year. This will dampen overall credit demand for Singapore banks,” Ong said.

“DBS Bank Ltd. and Oversea-Chinese Banking Corp. Ltd. (OCBC) could benefit more from China's reopening than peers, given their larger direct exposures and presence in the country,” Ong added.