Singapore banks' system loans up 3.5% in February

Loan growth is expected to hit 4% in FY17.

System loans grew 3.5% YoY in Feb (Jan +1%), reports Maybank Kim Eng, partly due to: 1) low-base effect as 2016 saw contraction in credit growth; 2) recovery in the macroeconomic environment; and 3) remarkable growth in lending to financial institutions (FI).

"We estimate the multiplier between system loans growth and Singapore GDP growth is 2x, on average. Our loan growth assumption for Singapore banks is 2-4% YoY in FY17, on the basis that banks will make selective lending. We estimate every 1% increase in loan growth could potentially raise net interest income by c.1%, ceteris paribus," says the firm.

Here's more from Maybank Kim Eng:

Corporate loans gathered momentum in Feb, increasing 4.5% YoY (Jan +1.4%), a level not seen since Aug’15. The improvement in lending was mainly led by Building & Construction (B&C) +5.2%, General Commerce (GC) +3.9% and Financial Institutions (FI) +12.3%.

Rebound in GC loan growth and a slower pace of contraction in manufacturing loans were consistent with strong non-oil domestic exports and industrial production data YTD. While corporate demand could be recovering, it is important to look for sustainability of FI loan growth as FI lending forms c.19% of system loans.

The strong FI loan growth is positively correlated to the performance of the FSSTI Index, especially in recent years. We think this could be partly attributed to lending to investment holding companies for margin financing purpose. FI growth may not be sustained if equity market performance turns lacklustre.

On the other hand, consumer loans rebounded from Jan’s weak reading of -0.1% YoY, at +0.8%. However, this still reflects weak consumer sentiment and headwinds in the domestic property market.