August marks the sixth month of decline in Singapore’s bank lending as both business and consumer loans took a hit from the weakness in the economy.

Total loans from the domestic banking unit – which captures lending in all currencies, but mainly reflects Singapore-dollar lending – slipped 0.1% from the previous month to some $678 billion in August. This is down from the $678.7 billion disbursed in July.

On a year-on-year basis, total loans were down 1.0%, the Monetary Authority of Singapore (MAS) outlined on September 30. This marks the third consecutive year-on-year decline in lending.

August’s decline was heralded by a 2.6% year-on-year contraction in consumer loans as housing loans saw a significant plunge (-1.4% year-on-year).

Still, the segment was in the green and had a 0.3% lift to $255 billion from August’s $254.51 billion lending. This follows a sharp 13.7% jump in share financing, which had previously been in the red in July, MAS notes.

Similarly, car loans rebounded by 0.7% while credit card loans was up 1.7% from the previous month, presumably as consumers had more opportunity to consume goods and services in August.

Such behaviour signals an improvement in consumer sentiments, says Selena Ling, head of treasury research and strategy at OCBC Bank.

“Consumer sentiments may also be stabilizing if not modestly ticking higher in the third quarter after the Circuit Breaker-induced lows in the second quarter, [although they are] not back to pre-Covid levels yet,” she mulls.

The slight boost in consumer lending was despite a dip in mortgages which has been on the decline since February. Housing and bridging loans came in at $199 billion in August, down 0.1% from the month before.

Meanwhile, business loans came in at $423 billion down 0.4% from the $425.85 billion disbursed in July, as loan growth to manufacturers and financial institutions narrowed.

A substantial drag came from loans to the hefty financial institutions segment which was down 2.1%, as businesses tighten their budget to save costs to cope with the current unprecedented economic crisis.

Interestingly, loans to the construction sector continued in the green with lending edging up by 0.8% to $150 billion in August. This comes as more construction firms resumed their projects in August.

Compared to August 2019, business loan growth was flat. 

Sectors such as business services (+21.0%), building and construction (+4.5%) and transport, storage and communications (+4.4%) performed better than expected as activity in these sectors picked up in August.

However, the manufacturing (-9.1%) and general commerce (-3.4%) sectors had underperformed possible due to an underlying uncertainty in the global economy.

“The slowdown in business loans momentum could signal challenging times ahead of the private sector, albeit the MAS is already in talks with financial institutions to extend the loans moratorium beyond December 31 to avoid a cliff effect upon expiry,” says Ling.

“This divergence in loans momentum between different business industries could be a reflection of a K-shaped recovery where different recovery speeds are noted depending on whether they are Covid-resilient and externally or domestically oriented,” she adds.

Looking ahead, Ling foresees a 1% year-on-year contraction in bank loans in 3Q2020 ending in September, and a marginal 0.2% growth for the full-year. If this materialises, 2020 would have the slowest bank loan growth rate since 2015, she notes.

“Recent economic indicators suggest a modest sequential 2H20 recovery and an earlier transition to Phase 3 before the year-end which may bode well for the certain beleaguered services industries. Nevertheless, without clarity on whether the loans moratorium will be extended into 2021, we are unlikely to see a quick turnaround in the bank loans momentum just yet”.

Shares of all three banks were down on September 30, with DBS dropping 7 cents or 0.35 % to close at $19.91 and UOB also dipping 10 cents or 0.523% to $19.03. OCBC meanwhile closed at $8.42, down 3 cents or 0.36%.