Singapore banks are set to close 2015 with their shares down 15-20 per cent from the start of the year, as concerns of slow growth in the Republic and the region outweigh hopes of gains from higher interest rates and fee income.
One indicator is bank lending in Singapore. The latest figures available for October showed bank lending had fallen from the previous month, dragged by weaker business loans across most segments.
This is the second - and a deeper - contraction following off September, preliminary data from the Monetary Authority of Singapore showed.
Loans through the domestic banking unit, which essentially captures lending in all currencies but mainly reflects Singapore-dollar lending, stood at S$602 billion in October, down 1.1 per cent from September. In September, bank lending fell 0.8 per cent from August.
Given the drag from business lending, bank lending in October from a year ago fell too, reversing from a year-on-year gain in September.
BMI Research cut its forecast for loan growth of Singapore banks to 5 per cent from 10 per cent in a recent report, over lacklustre economic growth in China and South-east Asia.
And BMI does not expect the government to ease up on cooling measures in the property market.
As it is, consumer lending in Singapore - while still expanding - has had growth decelerating for some two years now, in tandem with more stringent rules put in place to prevent over-leverage by borrowers enticed by low rates in the post-crisis period.
Growth has fallen to a single-digit level; about three quarters of consumer lending originates from mortgages.
"It remains our assertion that the Singaporean government is comfortable with the pace of the property market's correction so far, and prefers to see affordability improve further before it begins to ease up on its wide-ranging macro-prudential measures aimed at keeping a lid on prices," BMI said.
Still, Fitch Ratings noted that Singapore banks have built buffers by diversifying their business, with core non-interest income roughly 38 per cent of operating income. Of that, more than half represented recurring fee income between 2010 and 2014.
It also noted that banks have been selective in their lending in China by focusing on state-owned enterprises, large corporates and short-term trade loans. Fitch ranked the Singapore lenders "stable" in the outlook for both their ratings and the overall sector.
"A key risk lies in banks' exposure to the commodity sector, which has been hit by low commodity prices. We expect modest risk from this sector, given Singapore banks' diversified loan portfolios and steady asset-quality track record," it added.
Nomura is also sanguine, noting that concerns over the Singapore banks' exposure to China and commodity are overblown. It noted that risks have been manageable, and the credit costs have not been significant.
Meanwhile, the three-month Singapore interbank offered rate (Sibor) - of which many floating-rate mortgages are based - has more than doubled this year. "We expect loan growth to be modest at 5 per cent year-on-year but we think earnings could grow at 12 per cent year-on-year because of higher interest rates," said Nomura.
Both DBS Group Holdings and United Overseas Bank (UOB) have lost about 20 per cent in stock price since the start of the year, with DBS closing at S$16.65 on Monday and UOB at S$19.44.
Shares in Oversea-Chinese Banking Corporation (OCBC) - which earlier suffered from an overhang over its Wing Hang purchase - have fallen about 15 per cent, standing at S$8.82 on Monday.
Bank stocks have been a drag on the benchmark index, with the Straits Times Index down about 15 per cent since the start of the year.
This article was first published on Dec 29, 2015.
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