By Gabriel Chen

IN A fresh sign that the Singapore economy is recovering, the amount of bank lending to corporations finally posted an uptick in August after nine straight months of declines.

According to the latest figures from the Monetary Authority of Singapore (MAS), Singapore-dollar business loans in August rose by about 1.1 per cent to $153.5 billion from $151.8 billion in July.

Business loans had plunged from a year-high of $163.2 billion in October last year - a stark pointer to the onset of the slowdown globally as banks crimped lending and many firms, big and small, played it safe with their expansion plans.

The MAS data showed that the rise in business loans was aided by higher contributions from crucial trade-related sectors such as transport, logistics and general commerce.

Firms in these and other sectors routinely tap banks for cash for operational expenses, so the uplift suggests that economic activity is indeed picking up.

Many countries, including Singapore, have emerged from their worst recession in decades.

The easier credit flow is also due to the fact that some foreign banks, which cut lending in the aftermath of the collapse of Lehman Brothers in September last year, are now more willing to dish out loans.

'There has been a pick-up in business activity. Businesses are experiencing an improvement in orders and they are gradually restocking after the run-down of inventories,' said HSBC's head of commercial banking in Singapore Tan Siew Meng.

She observed that lending activity by the bank's competitors is also picking up, but she is unfazed by their actions.

'We are not afraid of competition. We've got loyal customers who have been banking with us for a long time.'

Starting late last year, lenders here became jittery at making the sort of loans that they would have waved through without a second glance a year earlier. They were being extra cautious as Singapore faced its worst recession ever.

To get credit flowing through the business community, the Government launched risk-sharing initiatives where it would bear a certain percentage of the risk of default.

Finance Minister Tharman Shanmugaratnam's Budget statement in January highlighted the bank lending problem.

He said at the time that several foreign banks, especially those with weak balance sheets globally, had been focusing on recapitalisation in their head offices.

Even stronger players, including the local banks, had reassessed their lending strategies because of the uncertainty over the depth and duration of the recession, Mr Tharman said back then.

Despite the latest upturn, the recovery in business loans may mostly be confined to larger corporations for now. Small and medium-sized enterprises (SMEs) are still being cautious and not aggressively securing new loans, bankers said.

'Confidence is coming back, but it hasn't translated into an increase in loan volume to SMEs, though we're seeing more activity in our trade portfolio,' said Ms Kavita Bedi, Standard Chartered Bank's general manager for SME banking.

Ms Bedi is seeing a healthy rise in letter of credit volumes in the bank's SME segment since the start of this year. A letter of credit refers to a document issued mostly by a financial institution, used mainly in trade finance.

Singdollar business loans could trend higher in the next few months as other factors come into play, bankers say.

According to Mr Linus Goh, OCBC Bank's global head of enterprise banking and financial institutions, the bullish sentiment in the property sector since the second quarter has not been fully captured in the business loans data due to a lag effect. 'There's a lag effect for new loans drawn down by developers for new projects,' he said.

DMG & Partners analyst Leng Seng Choon said he is slightly more bearish and would wait for the next few months before he is convinced that the recovery can be sustained.

'There is concern from some quarters there could be a double dip,' he said, and pointed out that consumer demand from the United States, the world's largest economy, is still quite weak.

A double-dip scenario happens when economic output slides again after a quarter or two of positive growth.

This article was first published in The Straits Times.