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Singapore banks' loan growth to weaken further: Fitch Solutions

THE loan growth outlook for Singapore banks may continue to weaken due to a combination of worsening global conditions arising from trade tensions and higher borrowing costs, as well as strict property restrictions, according to a Fitch Solutions report released on Wednesday.

Therefore, Fitch Solutions is revising its 2018 and 2019 loan growth forecasts to 4 per cent and 3 per cent, respectively. These are lower than the previous 2018 forecast of 5 per cent and 2019 forecast of 4.5 per cent.

It noted that Singapore banks’ loan growth softened to 4.5 per cent year on year in September, the lowest level since February.

The credit and macro intelligence solutions provider said in its report: "The subdued trend is likely to persist in light of the global economic headwinds stemming from rising US-China trade tensions and an upswing in interest rates. Domestically, tighter curbs on the residential property market will also act as a headwind to overall credit growth over the coming quarters."

It added: "Given that economic conditions are likely to worsen over the coming months, we expect business loan growth to slow further. The bearish sentiment is already observed in the expectations of manufacturers and the services sector over the next six months."

For consumer loans, Fitch Solutions also expects that growth will be dragged down mainly by the weakness in housing and bridging loan uptake, due to tighter curbs by the regulators. These loans account for about 76.7 per cent of all consumer loans.

Since curbs were introduced in July, "the growth of housing and bridging loans trended lower to 3.5 per cent year on year in September from a high of 4.8 per cent year on year in May, and a further slowdown is likely, as seen from previous episodes when property curbs were tightened", the report said.

Overall mortgage growth appears set to weaken on poor sentiment despite demand for mortgages from first-time homebuyers and those on the lookout for new homes following successful en-bloc sales. 

Fitch Solutions said: "Despite signs of a cooling housing market, the Monetary Authority of Singapore stated on Oct 11 that it will continue to keep a close watch over the property market and the implications of the tightening measures. This suggests that should the housing market reignites, additional curbs would be forthcoming, meaning that risks to mortgage demand remain weighted to the downside over the coming months."

Singapore loan breakdown

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