Bank lending dips 0.1% in July to $272b

Consumer loans rise despite drag from building and construction loans

BANK lending eased in July, reversing a modest increase in the previous two months, as a drop in building and construction loans ate into a continued rise in consumer housing loans.

But economists say that the drop in loans for construction is more likely a blip than the start of a worrying trend.

The total amount of Singapore-dollar loans held by banks here dipped 0.1 per cent over the month to $271.8 billion at end-July, estimates from the Monetary Authority of Singapore show. This followed an expansion in overall bank lending of 0.5 per cent in June and 0.3 per cent in May, which fuelled optimism that credit demand and supply could be recovering.

Compared with a year earlier, total loan volume at end-July was still 2.3 per cent higher.

Loans to businesses fell for a ninth straight month, to $151.8 billion at end-July, 1.1 per cent lower than at end-June.

The drop in business loans to the building and construction sector was the main reason for the fall. Outstanding loans to the sector shrank by $1.3 billion, or 2.6 per cent, over the month to $48.8 billion at end-July – the lowest level since end-September last year.

But ‘I wouldn’t think construction is about to collapse’, said David Cohen, director of Asian economic forecasting at Action Economics.

A possible reason for the dip could simply be that some property developers paid down bank debt in July, he added.

OCBC Bank economist Selena Ling said: ‘We can’t conclude very much from one month. But if we see the same trend in the coming months, it could suggest that as the integrated resorts near completion, we could see a bit of a drop-off’ in building and construction activity.

Total bank loans to businesses have shrunk by $11.4 billion, or 7 per cent, from the peak of $163.2 billion at end-October 2008, due to lower demand for borrowing as businesses put spending plans on hold, and more stringent lending conditions as banks limit their credit exposure.

Leng Seng Choon, an analyst at DMG & Partners Securities, said in a research note yesterday that he expects loans to business to remain ‘subdued’, due to weakness in the commerce sector and recent trade data that showed continued weakness in Singapore’s non-oil domestic exports.

Consumer loans, however, continued to grow strongly in July, driven by housing loans.

Total consumer loans rose 1.1 per cent during the month to $120 billion, compared with $118.7 billion at end-June.

Housing and bridging loans drove the increase, expanding $1.5 billion, or 1.8 per cent, over the month to $84.3 billion.

‘Frankly, the only thing that has been holding up the headline numbers is consumer loans. Housing and bridging loans are doing spectacularly well,’ Ms Ling said.

Still, ‘I wouldn’t be surprised to see overall loans growth dip into negative territory in the coming months’ on a year-on-year basis, she added. Overall bank lending peaked towards the end of last year, which means comparing the monthly figures in the third and fourth quarter of this year with the same months in 2008 could show a fall due to the high base.

Source : Business Times – 1 Sep 2009