Yet another month has passed with Singapore’s bank lending rate declining as both business and consumer loans took a hit from the effects of the health-turned-economic crisis.

Total loans from the domestic banking unit – which capture lending in all currencies, but mainly reflects Singapore-dollar lending – came in at $678.7 billion in July.

This is down 0.2% from the $680.1 billion disbursed in June and marks the metric’s fifth consecutive month of decline.

The latest data announced on August 31 are preliminary estimates by the Monetary Authority of Singapore (MAS). It also shows that the data on June is a revision from the $680.4 billion quoted in MAS’ preliminary findings released on July 31.

On a year-on-year basis, total loans were down 0.3% in July, extending the 1% drop registered the month before. This is the first back-to-back contraction since the last contraction streak ended in September 2016, notes Selena Ling, chief economist at OCBC Bank.

The decline was heralded by a 3.1% year-on-year drop in consumer loans to $254.5 billion, from $425.85 billion in June. This follows weakness in loans for housing (-1.4% year-on-year), Ling observes.

On a month-on-month basis, however, consumer loans were flat against the amount disbursed in June.

Meanwhile, business loans disbursed was down 0.3% - making this its fourth consecutive month of decline. Market watchers believe this follows the softer labour market and mixed consumer sentiments.

Interestingly, on a year-on-year basis, it increased 1.5%, thanks to stronger contributions from business services (+21.7%), building and construction (+4.9%), storage and communications (+3.6%) and financial institutions (+1.8%).

However, loans disbursed to other sectors such as general commerce (-2.0%) and manufacturing (-4.6%) showed weakness. Ling attributes this subdued regional trade prospects “despite the re-opening of regional economies”. 

“This could be a harbinger that the manufacturing recovery is possibly being handicapped by the rising US-China trade tensions and recent volatility in the domestic biomedical cluster,” she adds.

For now, Ling expects total bank loans to contract for the rest of the year – despite the 1.4% expansion clocked in the first seven months of the year. Her prediction is for the metric to barely register growth of 0.2% year-on-year full-year 2020 growth.

Given the bleak economic outlook, business and households have been cutting back on their discretionary spending. This has prompted MAS to announce that individuals and firms who have won the right to defer repaying their loans, need not reimburse the full sum once relief measures end on Dec 31.

Shares of all two banks were down on August 30, with UOB dipping 10 cents or 0.51% to $19.56 and OCBC dropping 4 cents or 0.46% to $8.67. DBS meanwhile closed at $20.87, up 11 cents or 0.53%.