Loan growth to stay muted as rate hike jitters prevail

Business loan growth slowed sharply in August.

Companies are growing more wary of taking out loans as interest rates rise. Loan growth in Singapore fell to 1.5% in August after growing 2.2% in July, dragged by a steep drop in business loan growth.

According to DBS, business loans are bearing the brunt of rising interest rates because most of these loans are linked to the Swap Offer Rate (SOR).

Unlike the interbank rate (SIBOR), SOR tends to be more volatile as it is also linked to currency movements.

“Depreciation in the SGD, following the weaknesses in Asian currencies, has already led to the spike-up in SOR. With an overarching Fed hike expectation, risk is for interest rates to rise further. Higher interest rates will continue to take the toll on loan growth in the coming months,” said DBS.