Bank lending stands at 7-month high in June

Growth fuelled by home loans even as lending to businesses slows

BANK lending rose in June to the highest level in seven months as growth in home loans accelerated even as lending to businesses continued to slow.

The total amount of Singapore-dollar loans held by banks here grew by 0.5 per cent over the month to $272.2 billion at end-June, estimates from the Monetary Authority of Singapore show. That followed an expansion in overall bank lending of 0.3 per cent in May, fuelling optimism that both credit demand and supply could be recovering.

‘It’s not very dramatic, but it is one more sign of stabilisation in the economy,’ said David Cohen, director of Asian economic forecasting at Action Economics.

The main source of growth was consumer housing and bridging loans, which rose 1.5 per cent in June to $82.9 billion, after a 0.8 per cent increase in May.

Total consumer loans rose 1.5 per cent in June to $118.7 billion at the end of the month, compared to $116.9 billion at end-May.

But loans to businesses fell for the eighth consecutive month in June, to $153.5 billion, although the decline was mild at just 0.2 per cent. Business loans to the manufacturing sector led the fall, shrinking 2.6 per cent over the month to $11.2 billion.

Still, ‘it does look like the pace of the fall is moderating’ for business lending, said Selena Ling, an economist at OCBC Bank. ‘I think part of it has to do with the risk-sharing initiative that the government put in place to keep up the lending to corporates.’

Some $4 billion worth of government-backed loans were approved in the first six months of this year, including $795 million approved in June alone, according to official figures released in July.

Total loans to businesses have shrunk by some $9.7 billion, or 6 per cent, from the peak of $163.2 billion at the end of October, due to a combination of lower demand for borrowing as businesses put spending plans on hold, and more stringent lending conditions by banks to limit their credit exposures.

That may now be changing, as banks start to ease some of the restrictions put in place late last year. ‘I do get the sense that the banks are beginning to ramp up their loans to the corporates again. The market sentiment has shifted towards more risk appetite,’ Ms Ling said.

Leng Seng Choon, an analyst at DMG & Partners Securities, said that loans growth is likely to remain lacklustre for the next few quarters. ‘The recent good take-up for new residential properties will contribute to housing loans, but only with a one- to two-year lag,’ he wrote in a research note. Meanwhile, he expects loans to businesses ‘to remain subdued, given the continued poor non-oil domestic exports and weakness in the retail segments’.

Over the year to end-June, total bank lending rose 4.2 per cent, compared to 5.5 per cent in the year to end-May. The year-on-year growth in loans is likely to ‘bump around in the low single-digits’ for a few more months, Ms Ling said.

Source : Business Times – 1 August 2009