Soft labour market drags on Singapore banks' consumer loans: analyst

Bank loans shrank for the first time since September 2016.

Singapore banks will see a weaker consumer loan appetite in the near-term as labour market conditions remains soft, reports OCBC Treasury Research.

Bank loans shrank for the first time since September 2016 by 1% YoY in June, the brokerage firm noted, despite the reopening of the Singapore economy after the circuit breaker period. This was mainly due to consumer loans falling 3.4% YoY during the month, which also marks the 11th consecutive month of contractions.

On the upside, business loans expanded 0.6% YoY. However, OCBC noted that this is also the slowest rate of growth in the segment since November 2016.

The recently released manufacturing and services business expectations survey reveal more troubles ahead for these sectors, which could in turn adversely affect the loan prospects of the banking sector. Outlook for these sectors remains very weak, with a net weighted 56% and 31% respectively expecting further deterioration.

As the services sector is a key employer, the persistent weakness in this sector does not bode well for the local job market, according to Selena Ling, head of treasury research and strategy, global treasury at OCBC Treasury Research.

“The recent Q2 total employment data already reflected a 121,800 decline, and net weighted 21% of the services sector expects to trim jobs for July-December 2020. This reinforces our view that labour pains will sustain into the year-end, despite the resumption of many economic activities here,” said Ling.

OCBC’s total unemployment rate forecast remains at 3% to 3.5% even should there be more policy assistance. The manufacturing sector also has a lacklustre employment outlook as a result of waning global demand amidst the ongoing pandemic.

“Within manufacturing, apart from electronics, all the other clusters see a smaller workforce in 2Q20. Within services, the accommodation industry and amusement and recreation services are most bearish on operating receipts,” noted Ling.

On a more positive note, 66% of manufacturing firms plan to invest in plant and machinery between April 2020-April 2021. This coma combination of replacement of worn-out equipment and installation of new production technology, the report noted.

Also, the government may extend more policy assistance to the labour market data. For example, the Jobs Support Scheme could remain for a longer period of time, though more calibrated and more targeted, or the SGUnited Jobs and Skills programme could potentially be accelerated or expanded, with possibly more attention to Professionals, Managers, Executives and Technicians (PMETs).

COVID-hit firms could also receive more assistant in the form of more rental or tax relief. However, if the pandemic persists, more companies may end up closing, said Ling.