Consumers resume credit bingeing

Singaporean consumers who survived the great recession have resumed binging on credit for that much needed iPhone or holiday overseas, according to latest figures released by the banks which show consumer loans will likely grow 13.3 % over 2010, ushering in a golden time for banks.

Things are looking so good that analyst firm CLSA reckons this year will see the strongest pace of earnings growth since pre Asian crisis levels as credit charges fade away and new loans soar.

But whilst consumers may be borrowing, it’s a different story over with the corporates, where borrowing is growing at less than 1 % as companies continue to hoard cash and delay investments.

It is in SME banking that the juciest margins are to be had and here UOB and OCBC should do well as small businesses start to grow again, whilst competition for large corporates remains fierce.

So what is really fuelling the consumer credit binge ? Cheap money and expensive houses seem to be the main driver, with mortgage lending expanding at its highest price in a decade at 16.5 % and no sign of a let up with 35,000 new residential properties due to come onto the market by 2013.

Even in public housing, there were 31,000 units under construction as of 2009, which could help boost the secondary sales market which is banked by the retail banks. Overall consumer credit grew 6.2 % but credit card spending blew out 16 %.

On the balance sheet we now know that losses for Singapore’s banks peaked in the first half of 2009 as the recession bit and the banks added almost $1 billion of provisions alone. But the latest quarter saw just $83 million added for provisions for non performing loans across Singapore and analysts from Deutsche Bank think that this means the banks will have some room to increase dividends or do some share buybacks if the economy continues to perform well.

“While we acknowledge that mean reversion is likely to oversimplify loan-loss outcomes, comparisons across the region suggest our Singapore bank loan-loss provision estimates are the highest relative to 2004-08 averages. In our view, this implies the sector has a greater relative earnings upside from potential credit quality normalization in 2010,” noted Deutsche Bank. Clearly the good times are back.