Singapore bank loans down for fifth straight month

Demand-supply conditions for loans remains soft going into Q4, says OCBC Treasury Research.

Singapore bank loans fell for the fifth consecutive month in October as demand from both corporates and consumers remained soft going into Q4 2020.

Overall bank loans fell by 2% YoY in October, faster than the 1% YoY average recorded in the previous two months. Compared to September, bank loans shrunk 0.3% MoM, ramping up slightly from the 0.1% MoM average of August and September.

Both business and consumer loans declined by 2% YoY and 2.1% YoY, suggesting that demand-supply conditions remained soft going into Q4, reports OCBC Treasury Research. Compared on a monthly basis, business loans also declined for the seventh straight month by 0.7% MoM, whilst consumer loans rose for the third consecutive month by 0.4% MoM.

Year-to-date, overall bank loans averaged 0.6% YoY, a significant drop from the 2.3% YoY growth seen in 10M 2019. This suggests that full-year 2020 bank loans growth could only narrowly escape falling into negative territory this year due to the COVID pandemic, said OCBC Treasury Research.

However, some recovery is in the horizon for Singapore bank loans as GDP is expected to rebound in 2021.

“With GDP growth tipped to rebound to 4%-6% YoY in 2021, albeit from a very low base this year, we should also see an uptick in loans growth momentum with the reflation story even if some credit deterioration continues to extend on a multi-month horizon,” the report said.

Financial institutions, general commerce, and manufacturing dragged business segments and business loans in October. Financial institutions fell by 11.4% YoY, general commerce by 6.2% YoY, and manufacturing by 3.9% YoY compared to October 2019. This was offset by other segments registering growth, such as business services (23.3% YoY), building & constructions (6.5% YoY), and transport, storage, & communications (5% YoY).

“The partial extension of loan moratoriums beyond 31 December 2020 for individuals and SMEs in need will help avoid the potential cliff effect amidst the still challenging economic environment due to the COVID-19 pandemic, but the mixed nature of the different business industries reaffirms the long tail nature of the Covid pandemic and the K-shaped nature of the recovery trajectory,” OCBC Treasury Research noted.

For the consumer loan segment, the key housing & bridging loans fell 0.7% YoY in October, extending the unbroken string of declines since May 2019, albeit milder than the 1.1% YoY decline seen in September. On the upside, housing loans rose for the second straight month by 0.3% MoM.

Other consumer loan segments were generally weak compared to a year ago, according to OCBC—car loans have been in negative territory since December 2019 and fell 6.5% YoY during October.

Meanwhile, credit card spending has not yet recovered since it started falling in February, accelerating to double-digit on-year declines since the onset of the Circuit Breaker period and continuing to register a 13.9% YoY drop in October.

Financing momentum also remained weak at 13% YoY in October and has been in contraction since December.

However, on a month-on-month basis, car loans and share financing both registered three months of positive sequential growth at 0.2% and 2.8% MoM. This suggests that consumer appetite for big-ticket items like cars and also risk appetite for investments, especially for equities amid the current market rally, are gradually returning, OCBC said.