as singapore trims growth forecasts will bank risks rise 1013122015

Though foreign labour restrictions are a concern, loan defaults are cause for greater worry

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By :  ,  Financial Analyst

Singapore yesterday trimmed its GDP growth estimate for 2015 from the previous estimate of 2 to 4 per cent to just 2 to 2.5 per cent based on the poor growth performance of 1.8 per cent during the second quarter from the previous year. In the previous quarter, the economy had clocked 2.8 per cent GDP growth year-on-year.

Meanwhile, the Monetary Authority of Singapore, which continues to be pre-occupied with inflationary pressures, is expected to keep its monetary policies unchanged at the next review in October, even though falling growth may call for easing measures.

One reason for high domestic inflation, as well as slow growth, particularly in manufacturing, is the restrictive policy on the employment of cheaper foreign labour. "The foreign labour measures are overly tight and risk tipping the economy into recession. Manufacturing is already in recession, with the contraction worsening in the second quarter," said Bank of America Merrill Lynch economist Chua Hak Bin, as quoted by the Business Times.

Non-oil domestic exports (NODX) in Singapore expanded only 2.1 per cent in the second quarter of 2015, significantly lower than the 4.8 per cent growth in the preceding quarter, according to data from International Enterprise (IE) Singapore released on Tuesday. The trade promotion agency said it is narrowing its total trade and NODX growth forecasts for 2015 to between -10.5 to -9.5 per cent and 1 to 2 per cent, respectively.

"In our view, the weak incoming growth trajectory reflects an economy that remains under pressure from both cyclical and structural factors,” said Morgan Stanley Research of the Q2 GDP data.

Meanwhile, Bloomberg sounded a note of warning Monday on the deteriorating loan quality at Singapore banks. The Bloomberg report said loans falling within the “special mention” category, which flags potential risk, had touched a six-year high of 2.3 per cent of Singapore banks’ loan portfolios.

Property linked soured loans at DBS Group Holdings Ltd (SGX:D05) have jumped 39.7 per cent to SG$524 million at end June versus SG$375 million last year, while at United Overseas Bank Ltd (SGX:U11) non-performing property loans moved up to 1 per cent of all loans from 0.8 per cent in the same period, Bloomberg said.

Loan recoveries are apparently struggling due to slowing property prices, in part due to the government’s ‘cooling measures,’ plunging oil prices and slowing economic growth.

The government’s crackdown on rampant property prices has also queried the pitch for the republic’s property developers and of course, their bankers.

According to Fitch Ratings, Singapore lenders have almost a 40 per cent component of their total lending linked to the property market, Bloomberg said. A severe downturn in that market would hit the asset quality at Singapore banks, driving down their profitability.

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