Singapore banks' loan growth to hit up to 4% in FY17

But foreign banks in Singapore are cutting their loan sizes.

Maybank Kim Eng economists forecast 2017 Singapore GDP growth of 2.5%. Using data from 2Q09 onwards, the multiplier between system loans growth and Singapore GDP growth is 2.0x on average, while the multiplier between banks’ loan growth in Singapore and GDP growth is 2.2x on average.

Analysts currently assume FY17 total loan growth of 2-4% YoY for Singapore banks. This assumption could be conservative if growth in Singapore’s domestic economy improves in 2017.

"We estimate every 1% increase in our loan growth assumption could raise net interest income by c.1%, ceteris paribus."

Here's more from Maybank Kim Eng:

Banks’ loans growth in Singapore is now 7-8%, which is faster than system loan growth at 0.5% YoY. Banks are now defending their market share in Singapore housing loans, which grew 7-10% YoY, faster than the system’s 4%. UOB had 31% market share for new housing loans in 4Q; DBS’s market share rose to 29% (3Q16: 28%). As housing loans form 21-27% of the banks’ total loans, it is a competitive business.

Notably, foreign banks in Singapore are reducing their loan sizes, suggesting that they are unwilling to take on higher risks amid reduced profits. For instance, HSBC (5 HK, Not Rated) reduced its housing loans by 20% YoY in 2016 to curb the size of this portfolio. Standard Chartered Bank (2888 HK, Not Rated) also reported lower new bookings for housing loans and business banking in Singapore. These made way for Singapore banks to gain market share and to outpace the growth in system loans.

Aside from housing, loan growth could come from building and construction, especially for public infrastructure projects. The Building and Construction Authority expects construction demand (i.e. value of construction contracts to be awarded) in FY17 to be SGD28-35b, with demand from the public sector of SGD20-24b (i.e ~70% of the total demand).