SINGAPORE (May 29): Bank lending in Singapore fell for the second consecutive month in April, with consumer loans falling sharper than business loans amid disruptions from the “circuit breaker” measures which kicked off on April 7.
Total loans slipped 0.4% month-on-month to $689.7 billion in April, from the $692.4 billion disbursed in March. Still, this is a 2% increase from the lending a year ago, the Monetary Authority of Singapore (MAS) outlined on Friday.
The decline was heralded by a 0.9% drop in consumer loans to $255.9 billion in April, from $258.2 billion in March.
“The start of the circuit breaker to combat Covid-19, exerted a significant dampening effect on private consumer spending and in turn consumer loans as well,” observes Selena Ling, head of treasury research and strategy at OCBC Bank.
“This shows up very clearly in credit card loans that slumped 13.1% [from the previous year],” she adds. On a month-on-month basis, these loans were down 9% to $9.65 billion, marking its largest decline on record.
Market watchers attribute this to the closure of retail and food and beverage outlets, coupled with the travel restrictions in place.
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The closure of car dealerships and showrooms and the suspension of the Certificate of Entitlement bidding exercise in this time, took a hit, with car loans declining to a four-year low.
On a month-on-month basis, car loans edged down 1.3% to $8.69 billion, from $8.8 billion in March. Compared to April 2019, this is a 3% contraction.
Similarly, housing and bridging loans – which form most of the consumer loans – fell 0.1% from March to record $200.06 billion disbursements in April.
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Loans excluding credit cards, or unsecured loans, fell 2.8% to $35.79 billion, following lower borrowings presumably on big-ticket expenditure such as education, and renovation works.
Meanwhile, business loans were also down a notch of 0.1% to $433.76 billion in April, reversing from growth recorded in the two preceding months of February and March.
This comes from a 1.9% drop in loans to financial institutions to $105.9 billion, as well as a 3.4% dip in general e-commerce loans to $67.43 billion, as businesses have toned down operations.
In contrast, loans to companies from building and construction, transport, storage and communications rose, presumably from a need for more liquidity to improve weakening cashflows.
Looking at April’s lending rates, economists say the decline may have been cushioned by fiscal support measures such as the Temporary Bridging Loan Programme and the Enterprise Funding Scheme implemented earlier this year.
“Notwithstanding these Budget initiatives to help businesses with credit financing, the macroeconomic backdrop is bearish due to the Covid-19 double-whammy giving rise to both supply chain disruptions and also a demand shock amid the numerous lockdowns across the region and globally,” notes Ling.
For now, she expects bank loan growth – particularly for consumer loans – to moderate further in May, to account for the extension in the circuit breaker measures. Beyond that, she is looking at a “cautious and muted recovery”.
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“While consumer loans may rebound, it will probably not normalise anytime soon. Bank loans growth for 2020 is tipped at a modest 2% y-o-y, but could have been worse if not for the Budget measures to ensure credit access for SMEs”.
With this in mind, DBS analyst Lim Rui Wen remains neutral on the sector. “We see limited upside ahead given the lower-for-longer interest rate environment and recessionary near-term outlook,” she says in a May 29 note.
A re-escalation of US-China trade tensions and the ongoing protests in Hong Kong further add to her cautious stance.
As such, she is posting “hold” calls on OCBC and UOB at target prices of $7.90 and $17.50 respectively.
Shares of both counters were down on Friday, with OCBC losing 1 cent or 1.16% to $8.55 and UOB falling 34 cents or 1.71% to $19.50. Meanwhile, shares of DBS were down 3 cents or 0.029% to $19.84.
