Singapore bank loans grew 2% in July

Business loans remain the star performer. Business loans expanded 2.7% MoM, ahead of consumer loans’ rise of 1.1%. Out of the S$7.5b MoM rise in DBU loans, 75% came from the business segment. Systemic loans expanded 18.3% YTD, with business loans having risen 48.1% and consumer loans up 10.1%.

Whilst business loan was the star performer YTD, we expect slowing business loans going forward, on the back of global uncertainties reducing investments by corporate. We are NEUTRAL weight the banking sector on the back of continued narrow NIM. UOB remains our top pick within the banking space on the back of its lower risk loan book – 28% of its loans is attributed to lower-risk housing loans, greater than OCBC’s 24% and DBS’ 23%. We have NEUTRAL recommendations for both DBS and OCBC.

Weaker consumer loan growth due to credit card and car loans. MAS monetary data for Jul 11 showed housing loans expanded 1.3% MoM, similar to the Jun 11 growth rate. However, consumer loans expanded a milder 1.1% MoM, versus Jun 11’s 1.7%, due to weakness in credit card and car loans.

Business loans MoM growth in Jul was sharply lower than in Jun. Business loans expansion of 2.7% MoM was also weaker than Jun 11’s 4.1%. This was due to softer growth in manufacturing loans, loans to financial institutions, and general commerce loans. We note that business loans MoM growth has seemingly peaked. We expect business loan growth to slow further in the coming months. This will moderate overall loan growth momentum in 2H2011.