Sky-high credit card rates pose bigger threat to the banking industry

Bank loans and deposits moderated in April but It's the credit card charge-off rates now inching closer to their 10-year average of 5% that concern analysts more.

Here's from Kenneth Ng, an analyst at CIMB:

System loan growth slowed to 1.4% in 4Q12 from a year ago (6.1%). Sequentially, loans shrank 0.3%, largely led by a 1.4% mom dip in  ACU loans. Credit demand in  Singapore, too, showed signs of  exhaustion, with DBU loans growing 3.5% in 4Q12 (2011: 8.8%) and 0.6% mom. LDR ratios held steady (DBU: 88.9%; ACU: 103.5%; S$ LDR: 72.6%). Property-related loans once  again led the growth (+1% mom), forming 75% of Apr’s lending. 4Q12 business loans slowed to 3.1% (2011: +14.8%) on loan repayments in commerce (-1.1% mom) and other business loans (-1.7% mom), offset transport-related loan growth (+6.2% mom). Consumer loans grew 2.1% in 4Q12 (+1% mom), with the aid of share financing (+10.8% mom) and other consumer loans (+1.2% mom). Credit-card charge-off rates continued to climb in Apr, to 4.53% (Mar: 4.46%).

The moderation in loan demand is in fact in sync with our 12-15% growth expectation for 2012. The decline in ACU loans should have stemmed  from fewer trade-financing opportunities in the region. Our biggest concern remains asset quality. Asset quality continued to deteriorate with Apr credit-card charge-off rates inching closer to their 10-year average of 5%.