Extremely low loan growth is the new normal for Singapore’s largest banks

Can higher rates come to the rescue?

Singapore’s largest lenders will have to grapple with extremely low loan demand in 2016, according to a report by CIMB.

In November 2015, total system loan growth dropped to 1.4%, compared to 9.1% in the same period in 2014. Overall loan growth was dragged by the contraction in business loans, compensated by growth in property loans.

Business loans saw YTD contraction in other loans (-8.0%), commerce (-5.1%), and manufacturing (-2.3%). Meanwhile, growth came from agriculture (+6.5%) and business services (+5.0%). 

Consumer loans were dragged by car loans (-9.1%) and credit cards (-2.5%); growth came from loans to individuals (+4.0%). Property loans, comprising building & construction (+18.6%) and mortgages (+3.5%), propped up overall loan growth.

Despite slowing loan growth, CIMB analysts believe that the positives of a higher interest rate environment on NIM will compensate for lower loan demand.

“1H15 saw the impact of a higher SIBOR and SOR benefiting the banks’ margins on floating rate loans. Based on our channel checks, new fixed rate mortgages were disbursed at a higher interest rate in Dec 2015, which will provide NIMs with another leg up in 4Q15 onwards,” CIMB said.