Loans to businesses slide, economists warn of more trouble ahead
Bank lending fell over the month in November, for the first time in nearly two years, as loans to businesses declined and more companies went bust, an early sign of the damage that the financial crisis is inflicting on the economy here.
Total Singapore-dollar bank loans at the end of November stood at $273.2 billion, down one per cent from the end of October - the first monthly slide in bank lending since December 2006, the latest figures from the Monetary Authority of Singapore show.
Over the year, overall bank lending was still up by 20.7 per cent, but that’s the slowest pace of growth since January.
‘It is a reflection that the global economic crisis has hit domestic shores,’ said OCBC economist Selena Ling.
Loans to businesses slid 2.2 per cent over the month to $159.6 billion at the end of November, the first monthly drop since April last year. The biggest decline was in loans to the transport, storage and communications sector, which fell 19.8 per cent over the month to $9.1 billion at end-November.
But the slowdown in lending growth was evident across most business and consumer loan segments.
Housing and bridging loans - the biggest category of consumer lending - grew just 0.5 per cent over the month. Compared to a year earlier, the growth was 8.5 per cent - the slowest since July 2007. Car loans and credit-card borrowing also grew over the month to end-November, but loans for share financing plummeted to their lowest level since June 2006.
Economists here expect bank lending growth to slow sharply in 2009, as the property sector cools, banks tighten credit standards and businesses and people cut back on borrowing.
Analysts at Standard Chartered Bank warned earlier this month that overall bank lending here could even contract slightly in 2009 compared to this year as business and consumer sentiment worsens, though others suggested that slow, but still positive year-on-year growth is more likely.
Song Seng Wun, senior economist and head of research at CIMB, said that while lending to some sectors could shrink, overall loans growth will likely be supported by continued drawdowns of existing property-related loans - by far the biggest chunk of bank lending here.
‘We’ll probably see mid to high single-digit growth,’ he said.
OCBC’s Ms Ling said that the slowdown in bank lending has been visible ‘for a couple of months’.
‘We are expecting loans growth to continue to decelerate. Although loans growth tends to be a lagging indicator, the whole Singapore economy is in a technical recession.’
The advance estimate of fourth-quarter economic growth to be released this Friday ‘will probably reflect a contraction in growth again, both in year-on-year and quarter-on-quarter terms’, she added.
Already, more businesses have folded in the first 11 months of this year than in the whole of 2007, data from the Insolvency and Public Trustee’s Office (IPTO) show. From January to November, 123 firms were forcibly wound up, compared to 106 for the whole of 2007 and 130 in 2006. But the numbers are still far below those seen in the wake of the Asian financial crisis, when the number of companies in compulsory liquidation soared to 370 in 1999.
‘I think the crunch will come probably in January, whether it’s personal or corporate bankruptcies,’ Ms Ling said. ‘These things take a couple of months to reach IPTO and if you count back to September, which was when Lehman Brothers blew up . . . you will probably see the numbers start to spike from January onwards.’
CIMB’s Mr Song said that more company failures are ‘inevitable’ in the months ahead, given the pressures faced by local businesses. ‘External demand has fallen off so much.’
Goh Chong Theng, Rabobank International’s Singapore general manager, told BT earlier this month that the bank had become ‘much more cautious and conservative in approving new loans’.
‘There will be many corporate failures - SMEs and large companies - due to the global recession and credit tightening,’ he said, when asked about the likely impact of the financial crisis in Singapore.
Source : Business Times - 31 Dec 2008
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