Banks' foreign-currency loans in October up 18%

Singapore

SINGAPORE banks are still fattening up their foreign-currency loan books, in line with the country's clear position as a treasury centre for Asian and international companies, data from the Monetary Authority of Singapore (MAS) showed on Friday.

Consequently, this drew some concern in MAS's financial stability review on Thursday.

In it, the central bank highlighted the funding risks that could emerge at a time of liquidity stresses, though mitigated partly by having many of these cross-border loans meant for trade financing.

Loans to non-bank institutions in foreign currency in the third quarter of this year grew 19 per cent from a year ago, MAS said in its review, with over 60 per cent of these loans disbursed within Asia.

In October, these loans grew at around the same pace, at 18 per cent from a year ago to S$528 billion, according to latest data.

This reflects how foreign banks are using Singapore as a funding hub, to fund these loans to the region through intragroup deposits from their head office, MAS said.

But it also shows how Singapore's corporate debt as a ratio to its gross domestic product (GDP) is misleading, given its status as an offshore financing centre, said Jeff Ng, an economist from Standard Chartered Bank.

MAS on Thursday flagged that business debt as a proportion to GDP has risen to 78 per cent in the second quarter of 2014, from 52 per cent in 2008.

With deposits growing slower than loans, the overall loan to deposit ratio (LDR) has breached 100 per cent since last year. In the third quarter of this year, this stood at 110.7 per cent, compared to 101.7 per cent in the same period a year ago.

This ratio - at a level last seen in 1998 - is a measure of liquidity, and is one way to show the extent banks can keep up with the pace at which they grow their loan book.

But MAS noted that trade finance made up 17 per cent of all non-bank loans as at September.

"The shorter tenor of trade finance facilities reduces the potential for tenor mismatches where long-term assets are funded by short-term liabilities."

It added the Singapore-dollar LDR remains healthy at 84.3 per cent in the third quarter, with excess Sing-dollar deposits channelled into cross-border lending.

This also comes amid tepid Sing-dollar loan growth. Bank lending that excluded inter-bank lending was flat for the second straight month in October at S$604 billion.

Business loans contracted again from September, shrinking 0.3 per cent to S$370 billion in October. This, though, this was a slightly smaller decline compared to the 0.4 per cent contraction posted in September.

Consumer loans gained 0.4 per cent to S$234 billion in October, a shade weaker than the 0.5 per cent growth in September. Weaker housing loans are expected to create a greater drag in the months ahead.