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Singapore loan growth during the month of June surprised on the downside, following some brief improvements over the past two months. Sharp drop in June 2016 loan growth pointed to more risks ahead.
Singapore’s loan growth fell 2.7 percent y/y, marking the sharpest monthly decline since December 1999. This is likely to have significant implications on growth and household balance sheet.
This sector already suffered a contraction of 15.2 percent q/q on a seasonally adjusted annual rate basis in the first quarter as persistent decline in loan growth and risk aversion in the financial markets have weighed down on its growth performance.
Firstly, the sharp drop in loan growth will raise the alarm on the performance of the financial services sector in the second quarter, DBS reported. The latest set of loan growth figures simply implies downside risk on the sector in the second quarter as well. The financial services sector accounts for a good 12.6 percent of the economy. Any sub-par performance in this sector will surely affect the overall GDP growth figure in the quarter.
In addition, the negative implication on growth is further underscored by the steep decline in business loans. Corporate loan growth fell sharply by 6.2 percent in the month, down from an already paltry 3.1 percent previously. A challenging business environment with poor corporate earnings, juxtaposed with a cloudy growth outlook has prompted businesses to turn more cautious in the borrowings.
However, consumer loan growth registered an increase of 2.8 percent y/y, unchanged from the previous month. Housing loan remains the main driver with an expansion of 3.8 percent while the recent easing in car loan regulations has brought about an uptick in car loan growth to -3.7 percent, up from -4.1 percent previously.
