Banks brace as loan growth crawls to a halt in Q1

The weak economy is to blame.

Banks are gearing up for slower loan growth in the first quarter, with the weak economy dampening customers’ appetite for debt.

Maybank Kim Eng noted in a report that loan growth could weaken further when the banks unveil their results in the last week of the month.

“We see slower loan growth in a weak economy. Given DBS’s reliance on trade loans at 18% of total loans at end-2014, its 8% constant-currency loan-growth guidance looks optimistic. Its trade loans might have shrunk in 1Q15 from intense competition and weaker demand, we believe,” the report stated.

In spite of lower loan growth, Maybank Kim Eng also noted that banks will generally report a better quarter thanks to fatter net interest margins.

“We look forward to sequentially better NIMs from rising SIBOR and SOR. DBS’s, unfortunately, could have been flat, with better non-trade loan margins overshadowed by tighter trade loan pricing plus a larger deployment of USD to lower-yielding money markets. The latter reflects shrinking trade loans and its prudential USD liquidity buffers. Still, NIM trends should be intact,” Maybank Kim Eng noted.