Weak lending growth to still haunt Singapore banks in 2017

Loan growth may sit only between 1% to 2% for the whole year.

Recent banking system data validates analysts' negative view on the sector as system loan growth continued to its 11% month of declining growth and asset quality continues to worsen.

According to analysts from Maybank KimEng, while an improvement across lending in most sectors, overall outlook remains challenging. Based on November data, corporate loan growth is at -1.9%, compared to -3.6% in the previous month; consumer loan growth slid to 0.7% from 1.7%.

"We estimate ~1-2% loan growth in FY17E for Singapore banks as we think lacklustre lending environment and banks are likely to be careful in their lending and will work with customers whom they are familiar with," the research firm said.

Meanwhile, asset quality continues to worsen as of September last year. System NPL ratio was 2.1%, a level not seen since Jun 2010.

"Our credit costs estimate is 39-44bps on average for Singapore banks from FY16-18E. We estimate that for every 10bps decline in credit costs, banks’ FY17-18E net profits will increase by around 6-7%," Maybank explained.

With this, it pointed out that banks will focus on driving revenue and cost containment to offset more provisions that need to be set aside in the face of worsening asset quality.