Singapore’s retail loans market is estimated to decline by 2.5% in 2020, compared to the previous forecast of 2.2% growth.

The contraction, which will reach an estimated $315.8 billion, is due to the negative impact of Covid-19 on its economy, according to data and analytics company GlobalData.

“The Covid-19 outbreak is weighing on Singapore’s banking industry, with banks experiencing low net interest margins (NIMs), primarily due to low-interest rates and rising credit costs,” says Shivani Gupta, senior banking and payment analyst at GlobalData.

“New loan applications have also declined as consumers became more cautious about taking on additional liabilities due to economic uncertainty,” Gupta adds.

According to Statistics Singapore, personal loans declined by 6.2% q-o-q in 1Q20.

To support borrowers, banks are offering flexible repayment options. DBS, for instance, is offering deferred principal payment of car loans monthly instalments till December 2020.

Mortgage loans accounted for the largest share of consumer loans in Singapore with a 75% share in 2019.

This is likely to decline in 2020 due to the strict social distancing rules and circuit breaker measures from April to June, which has affected the real estate market in Singapore, which will, in turn, result in the drop of new mortgage applications.

On March 31, the Monetary Authority of Singapore (MAS), together with the Association of Banks in Singapore (ABS), the Life Insurance Association (LIA), the General Insurance Association (GIA), and the Finance Houses Association of Singapore (FHAS), announced that they will extend or defer loan repayments, which will provide some relief to affected SMEs and individuals.

Furthermore, MAS said that credit card holders can convert their outstanding balances to term loans at a lower rate of interest, capped at 8% (compared to over 20% charged on credit cards). The term of the converted loan can be up to five years, depending on the individual’s ability to meet the minimum monthly repayment.

While the measures will help consumers manage loans, Gupta says they “may not be sufficient to encourage consumers to take any additional new loans in the short-run.”