September bank lending up 6.2% amid improved business sentiment

Singapore

SINGAPORE'S total bank lending may be reflecting a lift in business sentiment, amid brighter economic prospects coming from the Republic.

Bank lending in September was up 6.2 per cent from a year ago to S$641 billion in September, stronger than the 5.1 per cent year-on-year growth posted in August.

This comes as Singapore's economy powered its way into its strongest gross domestic product growth in more than three years for the third quarter of 2017.

Indeed, the third-quarter's cracking growth of 4.6 per cent came in much higher than the 2.9 per cent for the preceding quarter, surprising most economists.

But there remains a caveat: Economists expect growth to moderate as a result of a slowdown in manufacturing.

To be sure, manufacturing loans surged 11 per cent in September from a year ago to S$26.5 billion, reversing from contraction or flat growth since January 2017, preliminary data from the Monetary Authority of Singapore showed on Tuesday.

But in a report on business expectations, Selena Ling, head of treasury research and strategy at OCBC Bank, noted that after the manufacturers' output forecast peaked at 17 per cent for Q2 2017, it has continued to moderate to 9 per cent for that of Q3 2017 and 6 per cent for Q4 2017.

"The manufacturing engine is actually cooling," said Ms Ling.

Accordingly, the employment situation for manufacturers also remained in the doldrums at negative 11 per cent for Q4 2017, she said, adding that this is worse than the negative five per cent seen in the previous two quarters , with the only exceptions being chemicals and biomedical manufacturing clusters.

She noted, however, that confidence in the services sector has soared; service sentiments has improved for the third consecutive quarter.

The second most upbeat services segment was the finance and insurance sector. In September, loans to financial institutions rose 15 per cent from a year ago to S$92.4 billion, stronger than the 12.8 per cent year-on-year gain noted in August.

All in, business loans in September rose 8 per cent to S$383 billion, a stronger performance than the 5.8 per cent increase in August on a year-on-year basis.

The stronger growth in the business loan space came up against weaker growth in the consumer space, with consumer loans up 3.6 per cent in September, weaker than the 3.9 per cent growth posted in August. Consumer loans stood at S$257 billion for the month.

"Given the benign macroeconomic prognosis for 2018, especially for regional economies, and a very gradualist approach to global monetary policy normalisation, we do not expect any precipitous slowdown in domestic bank loans growth," said Ms Ling.