March Bank Lending Growth Fastest On Record

Source : The Business Times, May 01, 2008

Bank lending accelerated in March to its fastest pace in more than 16 years, led by a sharp rise in loans to the building and construction sector, figures from the Monetary Authority of Singapore show.

Total loans were $249.5 billion at end-March - up 23.9 per cent from a year earlier and the most rapid expansion since the start of 1992, the earliest year for which data can be calculated using records on the MAS website.

During March, loans growth also gathered momentum to 3.2 per cent, faster than February's pace of 2.1 per cent and January's 1.5 per cent.

In contrast, deposits grew just 13.7 per cent over the year to $330.8 billion at end-March.

The rapid loans growth relative to deposits reflects 'lots of liquidity' in the banking system - a good sign, according to CIMB economist Song Seng Wun.

Although loans to the broad property sector expanded the fastest, loans to most other sectors also grew, suggesting that financing of consumer spending and business activity remained strong in the first quarter.

The latest estimates from MAS also show that bank lending to the property sector continued to rise rapidly in March. Total property-related loans, comprising consumer home loans and business loans to the building and construction industry, reached $117.8 billion - up 27.3 per cent from a year earlier and the fastest pace of growth since July 1995.

Consumer home loans, which include mortgages as well as short-term 'bridging loans' provided by banks to buyers of new homes waiting for cash from the sale of property, grew 15.3 per cent from a year earlier to $74.2 billion at end-March, slightly slower than the 15.8 per cent pace in each of the first two months of the year.

Business loans to the building and construction sector soared 54.9 per cent to $43.6 billion, from $28.2 billion a year earlier.

Construction activity is expected to grow strongly for at least the rest of the year, given a strong pipeline of construction projects with completion dates that stretch to 2013, MAS said in its latest twice-yearly Macroeconomic Review on Tuesday.

It also cited construction as an industry sector it expects to be relatively insulated from a US economic downturn.

The total value of construction contracts awarded reached $24.5 billion last year, reflecting strong demand for residential and non-residential projects, it said.

'This suggests a possible surge in construction activity over the next two to three quarters, as work on projects progresses into the phase where the bulk of payment streams occurs. Future demand should also remain firm, with contracts for major projects such as the integrated resorts yet to be fully awarded.'

These projects are expected to fuel demand for bank finance. 'For instance, the ongoing construction of the integrated resorts and the Marina Bay Financial Centre will continue to provide impetus for building and construction loan activity,' MAS said.

'Meanwhile, consumer mortgage loans are expected to remain firm, supported by loans that will be extended when a number of private residential projects obtain their temporary occupation permits this year, some of which have been taken out under the deferred payment scheme.'

CIMB's Mr Song said he expects continued strong growth in bank lending at least until next year. 'If there is to be any reversal, it will come in the second half of 2009, if the current uncertainty continues and starts to affect consumer and business confidence,' he said.