Systemwide gross loans for commercial banks in Singapore have declined for three consecutive months. According to a report by S&P Global Ratings, borrowing appetite in Singapore is expected to moderate in 2023, with loan growth likely to come in the low-to-mid single digits.
Factors Weighing on Credit Appetite in Singapore
Sue Ong, the primary credit analyst at S&P Global Ratings, stated that there are three factors currently weighing on the credit appetite in Singapore. These include property-cooling measures, recession risk for major economies, and China’s reopening.
Impact of Property Cooling Measures
Ong says that the cooling measures taken in September and the rise in mortgage rates have hurt home prices and slowed down the market. A benchmark price index for private homes went up by 0.2% between the third and fourth quarters of 2022, which was less than the 3.8% increase in the previous quarter. Resale price index growth for flats owned by the Housing Development Board slowed to 2.3% in the fourth quarter from 2.6% in the third quarter. Losing steam in property prices could hurt the demand for mortgage loans, which make up about a quarter of all loans in Singapore.
Recession Risk for Major Economies
Concerns about a recession in the major economies add to the risks that credit demand will go down. Singapore’s externally oriented economy relies significantly on final demand in the U.S. and Europe. Later this year, these economies’ growth is likely to slow, which will reduce demand for exports in a number of important regional markets.
China’s Reopening
On the other hand, China’s reopening will partially neutralise the effects of the recession risk and the slowing momentum of the housing market. The nation’s quick reopening and abandonment of its zero-COVID policy may partially counteract the negative effects of the Western slowdown. However, the overall net effect on export demand this year should be negative. This will reduce Singaporean banks’ overall demand for credit.
Also read: Transforming Businesses: How Singapore CEOs Are Preparing For A Worsening Global Economy
In its report, S&P Global Ratings talks about the problems that Singapore’s banks will have to deal with in the coming year. Even though China’s reopening is a sign of hope, Singapore’s banks will still have to deal with problems like the risk of recession in major economies and measures to slow down the property market. Overall, loan growth is expected to come in the low-to-mid single digits for Singapore banks in 2023. DBS Bank Ltd. and Oversea-Chinese Banking Corp. Ltd. (OCBC) could benefit more from China’s reopening than peers, given their larger direct exposures and presence in the country.
