Singapore’s overall loans to only grow in single-digits in 2013

Nov figure dropped to 15.9% from 2011 peak of 31.1%.

According to DBS, loan growth numbers have been easing steadily. Latest November figure posted a 15.9% YoY increase, down from the recent peak of 31.1% in Sep11. DBS adds, December loan growth figure to be announced later this week should further reinforce this downward trend. "While one can attribute this downward trend to base effect, it is also consistent with the gradual slowdown in economic activity and the curbs on the property market."

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We reckon that overall loan growth will moderate to 8% this year, particularly after considering the effects of the most recent round of property market cooling measures.

Mortgage loan is an important driver of loan growth and accounts for about 31.2% of the total amount of outstanding loans in the economy. Real mortgage rate has turned negative since 2011. Such ultra low interest rate environment essentially discourages saving and encourages investors to leverage up and invest in assets such as property to hedge against inflation.

That explains why the overall economy’s exposure to the property market is now at a record high level. Total mortgage loan as a percentage of SGD banking sector deposits has reached a new high at 30%. In addition, outstanding mortgage loans as a percentage of GDP rose to 44% as of end 2012.

The latest move marks a deliberate shift to de-risk home-buyers, the financial system as well as the overall economy from the potential risk of a property bubble.

As the recent US experience with housing shows, the best way to address a crisis is to prevent one from occurring. Lowering consumer leverage and financial system risk will remain the focus in this aspect. And that implies moderate loan growth numbers going forward.