Banks' loan growth could hit 5% by end-2019

A slew of enbloc and infrastructure projects will boost lending activities.

Singapore banks remain on track to meet the full-year loan growth target of 5% as a strong pipeline of enbloc and infrastructure projects will boost borrowing activities, according to DBS Group Research. 

Also read: Construction industry to grow 3.3% in 2019-2028 amidst transport megaproject boom

In Q1, DBS, OCBC, and UOB saw their respective loan portfolios grow by 0.6%, 0.8%, and 3% QoQ. UOB, in particular, witnessed strong loan growth supported by pipeline built prior to property cooling measures. 

In May, bank loans grew 4.7% YoY, marking the fastest pace of growth for 2019. However, mortgages, which accounted for nearly a fourth (24%) of lending, fell flat as it dipped 0.1% MoM and 0.9% YTD in the same month.

“Whilst DBS Group Research does not expect the mortgage book to contract severely, unless there is an accelerated slowdown in the economy with massive unemployment, we believe that recovery in secondary sales transactions is needed to catalyse growth in mortgages, amidst a flattish primary sales environment,” the firm explained.

Also read: Banks turn to corporates for loan boost as mortgages weaken

Amidst the muted growth in the consumer finance business, Jefferies expects that Q2 will witness banks continued growth in fee income driven by wealth management thanks to strong flows from Hong Kong and steady markets. 

“Most US banks have reported a softer 2Q for trading revenue. We expect the local banks to be impacted to a lesser extent. Overall, non-interest income can help the banks mitigate the impact of margin slowdown,” Jefferies Summaries Singapore equity analyst Krishna Guha said in a report.

“Particularly, wealth management fees in Q1 were still -5 to -18% YoY lower than Q1 2018’s peak. We believe that in 2Q19, despite a market correction seen in May, the overall market sentiment remains resilient which should support wealth management income in 2Q19 as investors cautiously seek to navigate the markets,” he explained.