Housing loans increased to its highest level since 2009

Banking Sector Developments
October 2015

  Oct 15 Sep 15 Aug 15 Jul 15

Deposit rate (%) *
2.29 2.29 2.27 2.28
Lending rate (%) *
8.09 8.27 8.26 8.22

Total Deposits (T$m)
407.8 403.9 399.8 388.8
Total Lending (T$m) 436.2 427.9 422.4 418.1
New commitments (T$m) 14.9 13.5 10.5 14.5
Broad Money (T$m) 428.7 422.3 424.2 413.5

* Weighted Average calculated as a function of interest rate and volume of deposits and loans

Housing loans increased to its highest level since 2009

Lending

Total bank lending increased over the month and year by 1.4% and 13.8% respectively, driven by an increase in both household and business lending. Notably, housing loans is at its highest level since October 2009. The increase in housing loans showed encouraging signs for the housing and construction industry. Annual growth coincides with a 47 basis points decline in weighted average lending rates over the year. The continued increase in total lending indicates strong economic activities in the country.

Business lending

Banks’ lending to businesses rose slightly over the month by 0.5% to $154.1 million, due to an increase in lending to the distribution agricultural and manufacturing sectors. The increase in loans to the agricultural sector was partially supported by the government’s managed funds loan scheme. Including government on-lent loans, total lending to businesses rose by 0.3%. Over the year, total bank lending to businesses increased by 13.1%, due to major loans extended to public enterprises. However, including government on-lent loans, annual business lending increased only by 10.8%, reflecting declines in government on-lent loans.

Household lending

Banks’ lending to households increased over the month by 2.3% to $164.4 million, its highest level since 2006, due mainly to a $2.8 million rise in housing loans. This is reflected in the growing residential construction activities by individuals throughout the country. Including non-banks’ lending, total lending to households increased also. Over the year, total household lending increased by 15.1%, supported by a $15.3 million increase in housing loans and a $6.2 million in other personal loans. Including loans extended by non-banks, annual household lending increased by 17.6%, underpinned by an increase in other personal loans through the non-bank institutions.

Other lending

Other loans increased over the month by 1.3% but fell over the year by 40.6%, due mainly to lending activities within the non-profit institutions sector.

Non-performing loans

Total non-performing loans for the banking system fell over the month by 5.5% to $24.9 million, which represents 7.6% of total loans. The decline in non-performing loans reflected a fall in business non-performing loans, offsetting an increase in household non-performing loans over the month. However, household non-performing loans drove the 20.7% annual decline in non-performing loans.

Deposits

Total bank deposits increased over the month by 1.0% to $407.8 million, resulting mainly from an increase in households and businesses’ demand and term deposits. In year ended terms, bank deposits grew by 14.5% reflecting increases in all categories.

Interest rates spread

Banks Weighted average interest rate spread narrowed over the month from 5.98% to 5.80% in October 2015. This was driven by a decline in weighted average lending rate from 8.27% to 8.09%. Weighted average interest rate spread also fell over the year led by the 47 basis points decline in the weighted average lending rate due mainly to an increase in the number of low interest rate loans to businesses. Increased competitions among banks to maintain its existing good customers and also to attract new clients have resulted in the higher number of low interest loans to businesses.

Broad money

Broad money increased over the month by 1.5% to $428.7 million, due to a 2.6% rise in net domestic assets and a 1.1% increase in net foreign assets. The rise in net domestic assets reflects the increase in lending while an increase in foreign reserves drove the increase in net foreign assets. Broad money also increased over the year by 14.9%, underpinned by the increases in net domestic assets and net foreign assets. Total domestic demand deposits and currency in circulation also increased in line with the rise in broad money.

Liquidity

Banking system liquidity rose over the month and over the year by 2.0% and 14.3% respectively to $170.6 million, resulting from the increases in deposits and the foreign reserves.

Outlook

Credit growth is supported by the continuous improvements in business confidence, improving economic conditions and annual events. Continued competition amongst banks and the ongoing lending activities of the Government’s managed funds will continue to support the current low lending rates. The NRBT is forecasting credit growth to continue to grow by more than 10% in the next six months. The NRBT will continue to promote prudent lending and closely monitor credit growth in light of the impact on the monetary policy targets and financial stability.


Download the Banking Sector Development report of October for more information and figures.

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