Singapore’s retail loans market is estimated to decline in 2020 due to the negative impact of COVID-19 on the country’s economy, according to the latest estimates by GlobalData, a leading data and analytics company.

An analysis of GlobalData’s Global Retail Banking Analytics reveals that Singapore’s retail loans outstanding is expected to decline by 2.5% in 2020, compared to the previous forecast of 2.2% growth and will reach S$315.8bn (US$234.9bn) in 2020.

Shivani Gupta, Senior Banking and Payment Analyst at GlobalData, comments: “The COVID-19 outbreak is weighing on Singapore’s banking industry, with banks experiencing low net interest margins, primarily due to low interest rates and rising credit costs. New loan applications have also declined as consumers became more cautious about taking on additional liabilities due to economic uncertainty.”

According to Statistics Singapore, personal loans declined by 6.2% in Q1 2020 compared to Q4 2019. To support borrowers, banks are offering flexible repayment options. DBS, for instance, is offering deferred principal payment of car loans monthly installments till December 2020. Similarly, Citibank, under its debt consolidation plan, is helping customers reduce monthly repayment amounts by enabling them to extend their loans for up to five years.

Mortgage loans accounted for the largest share of consumer loans in Singapore with 75% share in 2019. Strict social distancing rules and other lockdown measures as a result of COVID-19 have affected the country’s real estate market, which in turn resulted in the drop of new mortgage applications. However, the central bank’s announcement of deferral or extension of loan repayments (including mortgages) until December 2020 will provide some relief to SMEs and individuals affected by the COVID-19 outbreak.

Furthermore, to aid credit cardholders, the central bank on 31 March 2020 announced that credit card holders can convert their outstanding balances to term loans at a lower rate of interest, capped at 8% (compared to over 20% charged on credit cards). The term of the converted loan can be up to five years, depending on the individual’s ability to meet the minimum monthly repayment.

Ms Gupta concludes: “COVID-19 pandemic has impacted the economy. While the government measures such as deferral loan repayments and reduced interest rate will help consumers manage existing loans, they may not be sufficient to encourage consumers to take any additional new loans in the short-run.”