Bank loans grow at slowest pace in a year

Business Times - 31 May 2008

Bank loans grow at slowest pace in a year

(SINGAPORE) Singapore bank loans grew at its weakest pace in a year in April as lending to businesses slowed, providing new signs that sluggish global demand could drag on the economy.

Bank loans in April rose 0.6 per cent to $251.1 billion in April from $249.5 billion in March, the central bank said yesterday, the slowest monthly growth since April 2007 when loans grew 0.2 per cent.

Loans to businesses fell across most industries from manufacturing to financial institutions, although the weakness was offset by the construction industry where loans grew 3.2 per cent.

Most analysts expect loan growth in Singapore to slow this year as a looming US recession slows Asia's economies.

'Business activity is definitely slowing down. It could be an initial sign of slower growth,' said Kit Wei Zheng, a Citigroup economist.

From a year ago, total loans rose nearly 25 per cent from $201.8 billion, mostly boosted by construction where lending grew 1.5 times. The industry has boomed in the past year, supported by the construction of two casinos worth around US$7.7 billion.

Analysts estimate that loan growth at the South- east Asian country's three banks, DBS Group, Oversea-Chinese Banking Corp and United Overseas Bank is expected to slow to 12-13 per cent this year after expanding 20 per cent in 2007.

However, economists said a recovery in the three-month Singapore Interbank Offered Rate, a benchmark for mortgage loans, would ease the squeeze on banks' profit margins. The rate fell to 1.1875 in April, its lowest level in more than four years.

Loans to manufacturers fell 1.2 per cent in April to $11.1 billion from March, while lending to financial institutions declined by 3.6 per cent.

Housing and bridging loans to consumers rose 0.5 per cent to $74.6 billion despite a slowing property market, although Citigroup's Mr Kit said the increase was probably not a result of new transactions but buyers paying off purchases closed previously under a deferred payment scheme\. \-- Reuters

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.