Singapore bank lending stuck in longest losing stretch on record

The financial sector is in trouble.

Loan growth in Singapore has been in the red for the past five months. Central bank data showed that overall loan growth in the city-state stood at -1.2% year-on-year in February, on back of a sharp contraction in business loans.

According to a report by DBS, the current downturn is equal to the previous longest stretch of negative loan growth, which was between November 1990 and April 2000.

DBS blamed the persistent loan growth weakness on higher financing costs, the slowdown in the economy, a softer labour market and a very uncertain economic climate in general. These factors have weighed down business confidence and consumer sentiment, DBS said.

“More importantly, the persistent decline in loan growth also suggests that financial activity is slowing. This could imply that the financial sector, an important driver of growth over the past three years, is losing steam. This will post a risk to overall GDP growth,” DBS warned.

And while it is easy to blame slowing business loan growth for the continued contraction, DBS highlighted that even the once-resilient consumer loan growth is moderating as well.

“Beyond higher interest rates, the fall in property prices has kept many potential homebuyers at the side lines while a softening labour market has led consumers to tighten their purse strings, particularly on discretionary items,” DBS said.

“Plainly, a challenging economic environment and higher interest rates are weighing down on loan numbers. And this will likely persist for the months ahead,” the report warned.