Singapore banks' loan growth seen to decline

On back of economic slowdown.

According to Nomura, it expects loan growth to decline as economic growth slows, while regulatory pressures are likely to weigh on the domestic mortgage market. However, NIMs could stabilise given the recent steepening yield curve.

Here's more from Nomura:

Our recent visit to all the three Singapore banks reaffirmed our positive view on the Singapore banking sector. Our meetings reconfirm our view that loan growth this year will stay in double-digits, NIMs are stable (and not falling), asset quality is robust and capitalisation levels are more than adequate.

We also think policy risk in Singapore could be easing as new mortgage bookings have fallen 20-30%y-y, while property prices have more or less levelled out. 

Loan growth for the three banks is driven by Greater China trade financing as well as the corporate business in Singapore. We expect a 2-3% quarterly expansion in loan growth for the rest of the year, implying an annualised run-rate of ~10%.

On a year-on-year basis, however, we project overall loan growth to be in the low- to mid-teens range given the large corporate deals in 1H13. We expect loan growth in Malaysia to pick up, post the country’s general elections in May.

In Indonesia, UOB indicates that growth will likely be slower but OCBC expects to maintain its 20% pace.

The Singapore housing market appears to have cooled, with mortgage originations declining significantly (in line with banks’ initial guidance). 

Mortgage rates have been stable this year at around 1.3%, albeit a nearly 30bp improvement from last year. The MAS macro-prudential measures implemented over the past three years are starting to have a moderating effect on the sector.

Housing loan growth has fallen to 13% currently from 15% in 2012, which we estimate should ease to 6% by mid-2015F assuming a 20-30% p.a. drop in new mortgage loans over the next two years.