Banks' profit prospects dim as loan demand drops

There's no escaping the slowdown.

The city-state's largest lenders face an uncertain outlook over coming quarters on back of the broad-based drop in loan demand, according to a report by BMI Research.

The report noted that banks' non-interest income will take a hit as loan growth stagnates. For instance, total outstanding loans contracted in month-on-month terms in September, while posting anaemic year-on-year growth of just 0.6%.

"The stagnation in the extension of credit is broad-based. Singapore's banks are likely to adopt a more cautious approach to lending in key overseas markets, including China, where OCBC and DBS have been relatively aggressive in building their loan portfolios over previous years and Southeast Asia, where UOB has made significant inroads," BMI Research said.

“At the same time, a deeper slowdown is likely as housing and bridging loan growth (4.8% y-o-y in September) has further to fall. Overall, we believe that loan growth will remain subdued throughout 2016, and have lowered our forecast to 5.0%, versus 10.0% previously, as a result,” the report added.