Thursday, December 30, 2010

Business loans surge in sign of upswing

IN A fresh sign that the Singapore economy is going from strength to strength, the amount of bank lending to corporations has exceeded the record levels set in 2008.

According to the latest figures from the Monetary Authority of Singapore, Singapore-dollar business loans topped an estimated $166 billion in October, up from September's $164.7 billion.

These numbers surpass the all-time high of $163.2 billion reached in October 2008, before the economic slump took its toll on lending activity.

Business loans stood at about $154 billion at the start of the year and grew steadily for the first half of the year. But there has been a recent surge.

September saw the fastest month-on-month loan growth in two years. Borrowings grew by 2.5 per cent from August, the highest since September 2008's 2.9 per cent growth from the month before.

As a result, many corporate bankers are reporting a bumper year for the loans business, with some saying they have also touched new record highs.

They point out that with interest rates at historic lows and the economy roaring ahead, companies are now reported to be looking for more space to house their personnel and products.

'As confidence in the economy strengthens, more doors of opportunities for growth have opened up and we are seeing more businesses seeking funding to expand their operations, or to reinstate capital expenditure which was largely held back during the crisis,' said Ms Tan Siew Meng, HSBC Singapore's head of commercial banking.

This story is mirrored elsewhere in Asia. Statistics from the Hong Kong Monetary Authority show that loans grew 6.3 per cent in September to hit HK$2.86 trillion (S$476.4 billion).

Here, building and construction has emerged as one outstanding sector for buoyant loan growth.

Bankers say that construction-related loans are riding high on the back of major civil and infrastructure projects rolled out by the Government, such as the Marina Coastal Expressway.

Loan growth has also been strong among companies in oil and gas due to the pickup in business activity and the overall improvement in sentiment, said Mr Eugene Tan, head of Asean at Citi Commercial Bank.

And OCBC head of enterprise banking and financial institutions Linus Goh reports that loan growth has also been seen among trading companies in the import and export business, and among commodity players who are also taking out more loans as trade volumes improve.

Some of the money is going into property. United Overseas Bank says that its business clients, both big and small, are taking property loans to buy residential, commercial and industrial properties.

In particular, property mortgages taken on by small and medium-sized enterprises (SMEs) are accelerating.

'They include SMEs in the light manufacturing, trading and precision engineering sectors,' noted Mr Ian Teo, head of the business support unit for DBS Enterprise Banking.

'The demand is driven by business growth, capacity expansion, and clients who have opted to switch from renting to owning their business premises.'

Mr Teo said that 'several industrial property developments are fairly popular with the SMEs, including Midview City at Sin Ming Road and Tradehub at Boon Lay Way'.

SMEs are so bullish that some are even borrowing to invest in offices, shophouses and industrial units so as to garner rental income, given the often attractive yield of non-residential properties.

'Residential properties typically have yields of about 3 per cent, whereas industrial properties can have yields in the region of 6 per cent. Shops can potentially have about 5 per cent yields, whereas office units about 4 per cent, or slightly lower,' said Mr Ong Kah Seng, senior manager for Asia-Pacific research at Cushman & Wakefield.

The situation is a complete reversal from a year ago, when the global economic slowdown caused banks to crimp lending and saw many firms, big and small, playing it safe with their expansion plans.

To get credit flowing, the Government had to launch a range of risk-sharing initiatives, which saw it bearing some of the risk of default on business loans.

'Today, businesses are more prepared to invest and banks are more willing to lend,' said Maybank Singapore's head of business banking, Mr Lee Hong Khim.

Although the so-called Special Risk Sharing Initiative will be discontinued at the end of next month, bankers say that the humming economy means that they do not need such facilities.

Tyre maker Omni-United is one firm that has taken out more loans over the past one year. Its founder and chief executive G.S. Sareen said that as demand has grown strongly for the firm's tyres, it has borrowed money to develop more products and expand its range.

Integrated logistics firm Addicon Logistics Management has not taken out any loans, but expects to borrow cash soon to finance the construction of a fashion logistics hub here, said its managing director Benjamin Koh.

'The bankers are willing to give out more loans now than during the crisis,' said Mr Koh.

'From what I heard, during the crisis they were willing to finance 65 per cent to 70 per cent of your project, but now they are willing to go up to at least 80 per cent of the total cost.'

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