Accelerating business loans hint of a recovering economy

The revival of business loans will have a much stronger positive effect on margins, said CIMB.

According to their report, CIMB's ground checks with the Singapore banks' and other sources suggest that the rate of margin compression has eased significantly in 1Q 2011.

The sell-side is obsessed with mortgage trends, it worries about the impact of property control measures on mortgage growth; but that is less important.

Business loan spreads are much more attractive. The Singapore banks have guided that loan inquiries and loan applications have picked up pace in March, after a seasonal slowdown in Jan-Feb. CIMB believes that these signs hint of a recovering economy where importantly, business capex spending is reviving.

Trends for 1Q11 banks’ results season. In recent quarters, net interest income has mostly disappointed for Singapore banks. We however, advocate that the broadening of economic growth will mark the turning point for margins in 1Q11. We expect 1Q trends to show:
• 3% qoq loan growth, on average;
• margins stabilising;
• healthy loan-related, trade-related fees;
• relatively poor trading performances;
• rising costs for DBS and UOB