3 reasons behind system lending growth in February

The increase was 3.5% year-on-year.

There was a 3.5% growth in system loans for the month of February this year, compared to the measly 1% growth recorded in the previous month.

According to Maybank Kim Eng, this was partly due to three things: low-base effect as 2016 saw contraction in credit growth; recovery in the macroeconomic environment; and remarkable growth in lending to financial institutions (FI).

"Our loan growth assumption for Singapore banks is 2-4% yoy in FY17, on the basis that banks will make selective lending," said Maybank Kim Eng.

In particular sectors, corporate loans gathered momentum in February, increasing 4.5% yoy, a level not seen since August 2015. This was led by the growth in loans to Building & Construction (B&C) at 5.2%, General Commerce (GC) at 3.9%, and Financial Institutions (FI) at 12.3%.

"Rebound in GC loan growth and a slower pace of contraction in manufacturing loans were consistent with strong non-oil domestic exports and industrial production data year-to-date. Whilst corporate demand could be recovering, it is important to look for sustainability of FI loan growth as FI lending forms c.19% of system loans," explained Maybank Kim Eng.

More so, the strong FI loan growth is positively correlated to the performance of the FSSTI Index, especially in recent years.

"We think this could be partly attributed to lending to investment holding companies for margin financing purpose. FI growth may not be sustained if equity market performance turns lacklustre," said the brokerage firm.

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