LENDING & CREDIT | Staff Reporter, Singapore

What will drive Singapore banks' sharp loan growth recovery?

The 7.6% growth in July was a significant improvement from the low of -2.7% in May 2016.

BMI Research noted that this recovery has been partly driven by an increase in demand for real estate amidst low prices.

"We believe that demand is likely to increase over the coming months as prices remain low whilst negative sentiment towards the housing market appears to have bottomed out," the firm added.

Here's more from BMI Research:

Whilst there is still a persistent oversupply in the residential property market, buyers are likely to take advantage of the low house prices, fuelling further demand for housing.

We therefore expect rising demand for housing loans to be positive for overall loan growth and have accordingly upgraded our loan growth forecast to 6.0% in 2017 (from 2.0% previously) and to 6.4% in 2018 (from 3.5% previously).

This new figure marks a sharp recovery from the 2.9% growth rate recorded in 2016. Government initiatives in the construction sector will also provide a degree of support to demand for construction-related loans. However, Singapore's uneven economic recovery is likely to continue to act as a slight drag on total loan growth.

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