Singapore Banks - Mortgages holding the fort, business lending declines in May

May-09 loan growth came in at 5.5% y/y for the industry, with personal loans clocking 7.9%. Business loans grew at a slower 3.7% y/y pace, while these loans contracted 0.1% m/m and 1.2% q/q. Details of loan growth are on page 2. Total loans, however, grew 0.3% m/m and 0.1% q/q.

Mortgages grew 8.8% y/y, 1.5% q/q and 0.8% m/m. In $ terms, loans grew by S$810mn m/m, with mortgages contributing S$627mn or 77% of the total growth. This is due to an increase in property transactions and completion of construction of apartments that were sold on a deferred payment basis in last few years.

Business loans have become a drag on overall loan growth this year, as against driving growth till late last year, per chart below. This change is due to continued risk reduction by banks as operating leverage becomes a concern for business credit.

Financials leverage related risks on business loans have diminished due to increased liquidity and revival of risk appetite. But we expect banks to remain in the risk reduction mode and closely ration business loan growth as operating cash-flows may remain sub-trend for an extended period of time.

We continue to expect DBS to lead industry loan growth, while OCBC may scale back mortgage loans due to low spreads. We expect UOB may reduce loans with higher capital charge (Asean, SME), while increasing mortgage loans (lower risk weight).

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