S'pore Banks Unlikely to See Significant Pickup in Loans Growth
January 08 2010
By : Ryan Huang, Channel NewsAsia
SINGAPORE: The worst may be over for the global banking sector, but Singapore banks are unlikely to see a significant pick up in loans growth.
Analysts said they are only expecting a single-digit increase. Some said the housing loan segment will set the pace.
CIMB is forecasting the segment to grow by 7 per cent for the year, while others are expecting it to be a low to mid single digit level.
Leng Seng Choon, co-head of research, DMG & Partners said: "For the commercial loan side, we feel that the growth will be more lacklustre as a whole, largely because Singapore is just recovering from the economic weakness in 2009. And loans typically lag the GDP recovery.
"The growth will largely come from the housing loan segment, because the housing sector is pretty vibrant and we saw a lot of sales that took place in the previous year, which is 2009."
Mr Leng added that loans relating to retail shops and hospitality sector will grow stronger, whereas other segments like the construction loan within commercial loans will be weak.
However, some are expecting to see a pickup on the commercial loans front.
Kenneth Ng, head, CIMB-GK Research said: "Heading towards 2010, one will expect business loans to continue to drive the recovery, partly as a multiplier because of the integrated resorts setting up here."
Moreover, amid the weak outlook for loans growth, industry watchers said local banks will face pressure from increased competition with foreign players. They said those with stronger balance sheets will be able to better withstand the tough conditions.
Mr Leng said: "We are now in an environment where the interest rates continue to be low - the banks that would suffer less would be UOB and OCBC, because they have higher loans-to-deposits ratio. For UOB, we like it because it has the highest loan loss coverage among the three banks."
Mr Ng said: In the local market, our favourite ... is UOB, mainly because we think that earnings would be driven by tailwinds from lower provisions. They currently have general provisions of 106 per cent, which is the highest among all three banks.
"As the non-performing loans environment improves, some of these provisions will be written back and we think that UOB has the best chance."
However, industry watchers also noted that loan provisions are expected to fall, which will be positive for the banks' bottomlines overall.