Trade tension curbs Singapore bank lending in May

Singapore

BANK lending may be "restrained" until the fog over trade tensions clears, said a top economist on Friday, as growth in business lending eased in May.

Business loans through the domestic banking unit - which captures lending in all currencies, but reflects mainly Singapore-dollar lending - stood at S$403 billion in May, up 5.8 per cent from a year ago. This was weaker than the 6.1 per cent increase noted in April, the data showed.

From a year ago, overall bank lending rose 5.5 per cent to S$668 billion, weaker than the year-on-year increase of 5.7 per cent posted in April.

"Trade protectionism is already flagged as the top potential risk to the Singapore economy," said Selena Ling, head of treasury research and strategy at OCBC Bank, in a report.

"As such, bank loans growth may be somewhat restrained in the short-term until there is some clarity on the trade front."

Indeed, the weaker expansion in business lending in May was due to less active lending for general commerce. Growth for lending to these trade-related industries stood at just 1.1 per cent from a year ago to S$68.8 billion. This compared to the 5.4 per cent year-on-year expansion in April.

Loans to the transport, storage and communication industry - which would include oil-related firms - contracted slightly in May from a year ago, down 0.8 per cent to S$22.3 billion, reversing from a one per cent expansion in April.

This trend likely reflects "growing business concerns about the escalating US-Sino trade rhetoric", which could increasingly drag on regional trade and logistics activity in the coming months if the US tariffs materialise and are met with retaliatory measures from its key trading partners, said Ms Ling.

But she pointed out that for the domestic economy, especially domestic-oriented services, momentum remains resilient. Building loans - which make up the single-largest business-lending segment - continue to expand in May from a year ago, up 1.4 per cent to S$124 billion. This is stronger than the 0.5 per cent gain noted in April.

"The saving grace is that other business loan segments like business services, financial institutions, and individuals for business remained healthy," Ms Ling said.

Consumer loans' growth remained steady, at 5 per cent from a year ago to S$265 billion.