Bankers brace for slowdown in loans growth

Bankers brace for slowdown in loans growth

 

Core lending to take a hit as building and construction ease up

 

By CHOW PENN NEE

 

(SINGAPORE) Bankers here have warned of a knock-on effect from the US slowdown, saying loans growth will slip from the blistering pace fuelled by last year’s property price explosion.

 

First-quarter figures from the Ministry of Trade and Industry (MTI) seem to confirm that the finance industry is already feeling the impact of the US slump.

 

Although Singapore’s economy grew 6.7 per cent in Q1, this was below the market consensus and the official flash estimate of 7.2 per cent, though up from 5.4 per cent a quarter earlier.

 

Financial services felt the effect of the US sub-prime crisis, with growth slipping to 13.4 per cent year-on-year from 16 per cent in the preceding quarter.

 

MTI said the local stock market was weaker due to concerns over global financial turmoil, but growth was ‘driven by robust expansions in both the domestic and offshore banking segments’. Commercial bank loans continued to grow strongly, especially to the building and construction sectors, MTI added.

 

Despite the slowdown, there are pockets of activity the banks can capitalise on, such as wealth management. ‘The nature of banking here has taken on an additional level by attracting international money,’ said Gerald Chan, UBS Singapore country head.

 

But there are also areas where growth will taper off. And one of them is the core business of lending. Loans growth may have continued in Q1, but it is unlikely to be sustained. The Q1 pipeline of loans remained healthy, with growth in the 20 per cent range. But Lim Cheng Teck, chief executive of Stanchart Singapore, said: ‘Some correction will be seen.’

 

Loans and advances to non-bank customers were $249.47 billion in Q1, up 24 per cent year-on-year, MTI figures show. But a moderation – into the low double-digit range – will probably start to show after Q2.

 

Given that some 55 per cent of the growth in bank loans has been driven by the building and construction sectors, which are abating, core lending is bound to be hit.

 

At the same time, a staggering increase in expenses will eat into bank profits. Wages are set to be a huge part of this expenditure. ‘Looking ahead, staff costs are the biggest expense,’ said Wee Ee Cheong, group deputy chairman and chief executive of United Overseas Bank.

 

A key inflation indicator – the consumer price index (CPI) – hit a 26-year high of 7.5 per cent last month, forcing the government to up its forecast for 2008 CPI by half a point to 5-6 per cent.

 

Tellingly, the outlook for the finance sector over the next six months has taken a dive. More financial institutions are forecasting a downward trend in business, as the mood is very much dictated by newsflows coming out of the US.

 

Q1 of this year registered a net downturn in sentiment – a sharp contrast to all four quarters last year when more firms indicated positive prospects.

 

OCBC chief executive David Conner said: ‘I see very good growth in Singapore, Malaysia and Indonesia – our principal markets.’ But that growth potential ‘could fall off fairly dramatically’ if sentiment sours.

 

 

Source: Business Times

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