Countless credit: Loans in Singapore reached a whopping $374b in June

Business loans remain the star performer. The Jun 2011 data released by MAS showed that business loans continue to outstrip the growth of consumer loans. Out of the S$51.6b YTD rise in DBU loans, 74% came from the business segment. With systemic loans having expanded 16% YTD, we expect positive but slower growth in subsequent quarters.

For the banking sector, we see loan growth as the key driver for net interest income, and therefore maintain our OVERWEIGHT stance (we upgraded the sector rating in Mar 2011). OCBC and UOB are BUYs, on the back of strength in wealth management fees and loan respectively. DBS is a NEUTRAL as the soft SIBOR will keep its NIM narrow in the subsequent quarters.

Housing loans growth is relatively weaker. MAS monetary data for Jun 11 showed that systemic DBU loans expanded a robust 3.0% MoM to S$374b. Business loans was up 4.1% MoM (and accounted for a 56% of total loans), whilst consumer loans rose a milder 1.7% MoM. Within the business loan segment, financial institutions was a strong performer, rising 6.1% MoM to S$48b. The relative weakness of housing loans is evident from its 1.3% MoM increase.

Expect softer but still positive loan growth in 2H11. Systemic loans has risen 16% YTD, reflecting the strength from business loans, which was up 22.3% YTD, and consumer loans was up 8.9% YTD. We expect loans to continue rising through 2H11, but the pace of increase is expected to weaken. This is line with guidance eg DBS CEO is guiding its bank to achieve mid-teens loan growth for 2011. We believe Singapore systemic loans could expand slightly north of 20% for 2011.