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October bank lending falls as businesses become more cautious

SINGAPORE — Confronted with a generally weak economic environment and rising interest rates, businesses have turned cautious in their borrowing, dragging down total bank lending in October, data from the Monetary Authority of Singapore showed today (Nov 30).

SINGAPORE — Confronted with a generally weak economic environment and rising interest rates, businesses have turned cautious in their borrowing, dragging down total bank lending in October, data from the Monetary Authority of Singapore showed today (Nov 30).

Loans and advances by domestic banks in October fell about 1.1 per cent to S$601.7 billion from September, the data showed. Compared with a year ago, loans were down 0.4 per cent.

“Across the segments of loans, some things are glaring,” said UOB economist Francis Tan. “The contraction in year-on-year loans for manufacturing and general commerce reflect the weak economic environment. This is also reflected by the weak non-oil domestic ­exports and industrial production figures in the past few months. Companies don’t need to expand their current capacities to buy more equipment or need more loans to pay for labour costs.”

Business loans fell 1.9 per cent to S$360.3 billion from September. Year-on-year, they fell by 2.6 per cent. Lending to manufacturing businesses and general commerce contracted by 4.2 per cent and 5.3 per cent from a month ago, and by 14.6 per cent and 11 per cent from a year ago, respectively.

Rising interest rates have played a part in companies refraining from borrowing, added Mr Tan.

“The three-month Singapore ­Interbank Offered Rate (SIBOR) has increased from 0.4 per cent mid last year to 1.07 per cent now. This is more than a 100 per cent year-on-year ­increase … As interest rates rise, loan volumes tend to dip,” said Mr Tan.

The challenging economic situation facing Singapore is also happening in some of its most important trading partners, including Indonesia, ­Malaysia and China, curbing the ­expansion appetite of companies, said Credit Suisse economist Michael Wan.

“Businesses are still wary of funding expansion when they have not gotten clarity on the outlook for China, and also the magnitude of Fed funds rate hikes next year,” said Mr Wan.

Business loans are expected to continue to remain slow. “Bank lending to businesses will continue to face pressure on the back of the same current challenges — slow external demand and pending higher interest rates borrowers are expecting in 2016,” said Mr Tan, adding that he expects the three-month SIBOR to increase to 1.5 per cent by the end of 2016.

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