Property curbs weigh on Singapore banks' loan growth

Loan growth moderated to 14.6%.

According to DBS, loan growth has eased and will likely continue to moderate. Latest Feb14 loan growth figure registered 14.6% YoY. While it is still in double digit growth pace, this is the slowest since Dec10 and just half of the pace recorded in the same month just two years ago.

Here's more:

Credit growth is slowing. While higher rates or expectation of higher rates going forward could be a factor, the main reason is still the property market cooling measures put in place by the authority, especially the Total Debt Serving Ratio (TDSR) measure introduced by the Monetary Authority last year.

Financial institutions are not allowed to extend further loan to borrowers if his current TDSR is already at 60%. That essentially limits the extent of leverage given to consumers by financial institutions and as a result cooled consumer related loan, particularly for mortgage loans.

Grated that there was car loan related curbs introduced early last year as well, that saw car loans contracting by double digit pace (-17.1% YoY as of Feb14), the moderation in mortgage loans has been the main drag.

Car loans take up just about 2% of the total outstanding loans in Singapore whereas mortgage loans account for a massive 30% share. It is the largest segment in the various types of loans and advances within the domestic banking system.

It has since eased to just 7.8% as of Feb14, down from about 20% back in May11. This is further manifested by the moderation in property transaction values, essentially suggesting a cooling property market against the backdrop of the tighter financing measures.

So, as long as tighter property measures remain in place, overall loan growth in Singapore will continue to ease. In our opinion, loan growth will likely dip into the single digit level by the end of the year, especially if one considers the expectation of higher interest rates ahead.