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Loan growth expected to be lower as investors push back investment decisions

by • March 20, 2020 • Research and AnalysisComments (0)78

DBS Group Research says that Singapore Banks should expect slower loan growth in 1st Half of 2020

Covid-19 led slowdown to impact Singapore banks’ loan books as investors push back investment decisions.

  • Expect slower loan growth in 1H20 due to COVID-19
  • Mortgage book held firm in Jan’20
  • Loan-to-deposit ratio eases as deposit growth outpaces loan growth
  • Neutral on sector; dividend yields and strong capital base should provide some support

DBS said in a note dated Feb 28 that it believes that increased uncertainty regionally and ex-Asia due to the current COVID-19 situation will result in slower loan growth in 1H20 going forward as investment decisions are pushed back. DBS has guided for a mid-single-digit loan growth, while OCBC and UOB have guided for low and low-to-mid single-digit loan growth for FY20F respectively.

loan growthDBS sees overall loan growth for Singapore banks at c.3-4% for FY20F, remaining cognisant of downside risks should COVID-19 continue to affect more countries.

DBS expects to see some of the new bookings seen through 2H19 (relating to popular launches) being translated into mortgage drawdowns subsequently.

“We also continue to keep watch for the secondary refinancing market as y-o-y declines for secondary sales in 2H19 has moderated from declines of c. 45-50% y-o-y since the cooling measures were implemented. We believe the current COVID-19 situation may weigh on an impending property market recovery in the meantime.

We remain Neutral on Singapore banks and are cautious of the impact of COVID-19 on the domestic economy, as well as supply chains in the region. Barring any sharp deterioration in asset quality, we are of the view that share prices are likely to trade sideways; dividend yields and strong capital base should provide some support.”

The Monetary Authority of Singapore (MAS) said in a press release on Feb 14 that it welcomes the recent announcements from banks and insurers in Singapore to support their customers who may be facing financial difficulties brought about by the impact of the ongoing 2019 novel coronavirus (COVID-19) outbreak.

The support announced by financial institutions thus far include moratoriums on repayments for affected corporate and individual customers, extension of payment terms for trade finance facilities, and additional financing for working capital.

MAS noted that the measures are in line with guidelines on corporate debt restructuring by the Association of Banks in Singapore (ABS). Insurers in Singapore have clarified that Integrated Shield Plans (IP), IP riders and most other personal and group health insurance policies will cover hospitalisation expenses related to COVID-19.

Some insurers have extended additional benefits to life insurance policyholders diagnosed with COVID-19, such as complimentary lump sum payments upon diagnosis, as well as daily cash payment for the duration of hospitalisation.

MAS said it supports these efforts by financial institutions to work constructively with customers affected by COVID-19 while adhering to prudent risk assessments. The various measures by financial institutions will help corporates and individuals facing short-term cash flow constraints and provide timely insurance coverage for policyholders affected by COVID-19. Taken together, these measures by financial institutions should help to buffer some of the impact on corporates and individuals from the COVID-19 outbreak, said MAS.

Mr Paul Ho, Founder & Managing Director at IcompareLoan said, “It is already very evident that loan growth will be affected in this climate of fear caused by Covid-19. And now there is also the oil price slump. All these will affect the property sector in Singapore.”

Colliers International, in research reports published last month said that Covid-19 poses near-term risk to property sectors in Singapore.

Ms Tricia Song, Head of Research for Singapore at Colliers International, said, “We expect rents to stabilise and recover gradually as new supply pipeline eases over 2020-2024. Nonetheless, retail sales remain fragile. Excluding motor vehicles, the retail sales declined 1.2% in 2019In the near-term, the outbreak of coronavirus (COVID-19) could dampen consumer sentiment and delay a recovery. The situation is evolving, and no one really knows how this will turn out at this point; the outbreak could be the proverbial black swan that will hurt the retail sector.”

Mr Dominic Peters, Senior Director of Industrial Services at Colliers International, said, “The COVID-19 outbreak could hit manufacturers with disruption to the global supply chain in the near-term. Coupled with ample new stock, factory rents would likely remain under pressure. In general, we forecast continued two-tier performance between older lower-specifications and newer higher-specifications facilities. Centrally-located business parks and high-spec buildings with good amenities should continue to attract healthy demand while those older and further away from MRT stations or in suburban areas could face more pressure.”

The economic impact of the Coronavirus issue is expected to be short-lived based on the current situation, says a note from Cushman & Wakefield (C&W). The report said that the Singapore government has tried to put in place multiple lines of defence to minimize the chances of the virus spreading further. Any disruption to market activity is expected to be short-lived and so the real estate impact will be minimal said Ms Christine Li, C&W’s Head of Research for South East Asia.

Ms Christine Li, Cushman & Wakefield’s Head of Research for South East Asia, said, “high-end luxury properties with more Chinese buyers could face slower take-up rates as viewings are expected to slow down in the midst of the outbreak. Again, the impact should still be contained as Singapore continues to be seen as a safe haven location amid heightened global uncertainties.”

She added, “liquidity is still aplenty and investors continue to search for yield in the real estate sector. Well-managed and well-located office and industrial assets will remain sought after by investors and occupiers who typically take a medium to long term view when they purchase or lease these properties.”

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