Local banks slow down loan activity

Local banks slow down loan activity


Foreign banks step in to fill the gap as their local counterparts become more circumspect in extending loans due to industry limits, writes SIOW LI SEN


A CURIOUS thing is happening among lenders in Singapore. The local banks are slowing down their loans activity while foreign banks have taken up the slack and are increasing their market share.


Latest data from the Monetary Authority of Singapore shows that industry loans at the end of the first quarter grew 6.9 per cent from the previous quarter and 23.9 per cent from a year ago.


Ng Wee Siang, BNP Paribas analyst, has projected that 2008 will see a robust 18 per cent in loans growth, led by building and construction loans.


Loans growth for March was fuelled by broad-based business loans driven by building and construction, up 54 per cent from a year ago and financial institution loans, up 23.3 per cent. Consumer loan growth, however, seems to have peaked.


DBS Group Holdings was the only bank which kept up with the buoyant system growth with loans up 8.5 per cent in Q1 from the previous quarter. ‘This means foreign banks are winning share,’ said Matthew Wilson, an analyst with Morgan Stanley.


Even DBS is expected to see its loans growth moderate for the rest of the year and is unlikely to repeat its 25.2 per cent increase in 2007, said Mr Ng.


‘While the loan pipeline remains healthy, (DBS) management has guided that loan growth is set to moderate,’ said Mr Ng. ‘Management indicated that a 10-20 per cent loan growth is within reach,’ he added.


United Overseas Bank said its first quarter 2008 loan growth was only 1.8 per cent. Its management said that the bank has reached its internal limits for some exposures, and risk management guidelines are curtailing loan growth.


OCBC Bank reported quarter-on-quarter loan growth of 4 per cent and 19 per cent year-on-year. Its chief executive David Conner noted that the industry loans growth – which has been in the above 20 per cent range – is expected to come down. ‘It is bound to taper off,’ he said, adding: ‘It will come down to a low double-digit range.’


It is not surprising that the local banks would become more measured in selling loans given the economic uncertainties.


But this wasn’t supposed to happen. Late last year, some observers thought that 2008 would be the year of the local banks as they would gobble up loans and other banking business at the expense of the foreign banks which had been nipping at their heels.


The thinking was that foreign banks – nursing massive losses at home, and facing diminished capital bases at the group level – would have to pull back on their activities.


Local banks did have some exposure to the US sub-prime loans and collateralised debt obligations but their losses were very small and did not impact their capital.


Local bankers had another reason why they were looking forward to strengthening their position this year in spite of sliding interest rates as central banks eased. Foreign banks are typically able to sell more customer loans in Singapore when interest rates fall as they can borrow cheaply on the interbank.


This time round, local banks thought they would face less competitive pressure from the foreign banks which may be constricted by their smaller capital bases.


But not all foreign banks have been hurt by the sub-prime losses. Even those which have taken hits cannot afford to pull back in Asia which is showing strong growth.


Maybank, Malaysia’s largest bank, which recently released its nine months’ results, said loans growth at its Singapore operations grew 19.2 per cent. And Standard Chartered Bank said its Singapore operations will be expanding by nearly 11 per cent in 2008. Some 500 people will be hired in Singapore across the consumer and wholesale banking and support functions, mainly in sales and risk management positions. The bank employs some 4,700 people here.


In Singapore, liquidity is plentiful and local banks take in more deposits than they can lend out, but they have become more circumspect in extending loans as they are facing industry limits.


Section 35 of the Banking Act restricts property exposure to 35 per cent. Banks also have their own internal exposure limits. The local banks in the past couple of years have increased their loan books mainly by lending to the real estate sector.


Singapore continues to have some mega construction projects over the next few years but it looks like the foreign banks may get a bigger share in financing them.


Two local banks and 13 foreign banks participated in last month’s loan syndication of $4 billion credit facilities for the Sentosa integrated resort development, one of the largest loans ever undertaken in Singapore.


‘The bulls point to the very buoyant Singapore loans growth but only DBS is keeping up with system growth. Foreign banks are increasingly participating, as Asia has never been more important and the local banks are approaching their exposure limits,’ summed up Mr Wilson.


Source: Business Times

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