http://www.businesstimes.com.sg/arch...ier-20130831-0
Published August 31, 2013
Bank lending breaches psychological barrier
Loans-to-deposits ratio crosses 100% mark despite slower lending; analysts preach prudence as leverage concerns grow
By Kelly Tay [email protected]
THE banking sector's loans-to-deposits ratio crossed 100 for the first time since the Asian financial crisis, providing evidence that the Monetary Authority of Singapore's (MAS's) recent moves to curb excessive lending were timely, say economists.
Bank lending in July continued to slow from a year ago for a third consecutive month, dragged down by slower growth in consumer loans. According to preliminary figures released by the MAS yesterday, domestic banking unit (DBU) loans rose 17.6 per cent to $539 billion in July year-on-year, down slightly from June's 17.7 per cent growth.
But what caught the industry's eye was the fact that the sector's loans-to-deposits ratio breached the 100 per cent threshold - marking the first time since September 1995 that this has occurred.
A ratio beyond 100 per cent means that banks are now lending more than they are taking in.
"I think it's a sign for everyone to be more prudent, because we haven't really seen such a quick rise in loans-to-deposits ratio for many years," said UOB economist Francis Tan, who noted that, on average, the city-state's loans-to-deposits ratio typically hovers around 88.3 per cent.
"The fact that it's getting higher means there is more leverage in the system, so in the event of a crisis - which is predominantly driven by external issues - people may be overstretched in repaying the instalments they owe," said Mr Tan, adding that the 100 per cent threshold acts as a "psychological benchmark".
Over the month, total bank loans rose 1.2 per cent at the end of July, faster than June's 0.7 per cent growth.
Business loans grew 1.6 per cent over the month to $321.1 billion, rising from the 0.7 per cent growth in June.
But even though loans to businesses accelerated slightly year-on-year - rising 20.8 per cent in July from 20.4 per cent in June - the increase was not enough to offset a slower growth in consumer loans.
Compared to a year ago, growth in loans to consumers slowed to 13.2 per cent and reached $217.9 billion, moderating from June's 13.8 per cent. On a month-on-month basis, consumer loans grew at 0.7 per cent in July, as they did in June.
Economists attribute the slowdown in year-on-year consumer lending to recent policy measures to cool the exuberant car and property markets, as well as new loan curbs that encourage financial prudence.
Housing and bridging loans - the largest consumer loans segment making up 74 per cent of the basket - continued to grow at a slower pace of 14.1 per cent in July, down from 14.5 per cent in June. In month-on-month terms, total housing loans were just 0.8 per cent higher.
Said DBS economist Irvin Seah: "We're no longer seeing total loans growth of 20-plus per cent, and it's largely because of the cooling measures introduced by the government - particularly the most recent TDSR (total debt servicing ratio) measure.
"I think that will continue to weigh down the consumer loan growth number, and for good reason," said Mr Seah.
"We have to be careful about consumer leverage, which is already at a historical high, and probably one of the highest in the region. It's an area of concern, and another reason for why the introduction of (the) TDSR (was) the right way to go," added Mr Seah.
Meanwhile, car loans shrank for an eighth straight month, falling 7.4 per cent from a year ago. Lending for cars was 2 per cent thinner in July compared to June.
Economists agreed that dampened demand for cars continues to feed into the decline in car loans, due to MAS vehicle loan curbs and high certificate of entitlement (COE) premiums.
Despite July's slightly stronger year-on-year showing in business lending, both Mr Tan and Mr Seah believe this will moderate in the months ahead.
"Quite a large chunk of Singapore's trade is intra-regional, so if Asia grows at a slower pace, that will slow business loans down," said Mr Seah.
When asked if overall bank lending numbers were still healthy - since coming off the 20-plus per cent growth rates seen in late 2011 and early 2012 - Mr Seah of DBS said: "I think from now on we'll need to look at loans growth in a totally different perspective. We shouldn't be focusing on the headline number anymore; we should distinguish between corporate and consumer loans.
"An improvement in corporate loans implies better investments, which is positive. But if we see an uptick in consumer loans, that means rising consumer leverage, and that will mean a negative thing."
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