The start of the year 2018 for Singaporeans was not all that uplifting. It came amidst a gloomy forecast from global and local financial analyst and by the end of quarter one the prediction had come to pass. The country faced slow growth and the Monetary Authority of Singapore (MAS) was forced to downgrade its earlier predictions for the New Year.
However, the recent announcement by Ministry of Trade and Industry (MIT) is bound to uplift the spirits in the city state as a quicker growth pace is reported. The gross Domestic Product (GDP) grew by an annualized 0.8 percent from the first quarter according to the estimate from MIT. This comes amidst the backdrop of the Central Bank easing policy back in April with the next review coming in October.
What’s coming up?
The expanding GDP has forced analysts to explain the unusual trend with most saying a rebound in services is the main reason for the positive growth. The median forecast by a Bloomberg survey earlier was 0.9% as reported by SingBusinessLoan.com but there was still a large segment of economists who had projected growth in Quarter 2 to hit only 0.2 percent.
Despite the expansion in GDP questions are still being raised over the longevity of the trend. The global uncertainty caused by Britain’s exit of the European Union (EU) have seen major upheavals in major financial hubs of which Singapore is one.
For trade-dependent Singapore its vulnerability to capricious global market demand raises the question on how long the second quarter’s improvement in GDP is going to last. Some analysts are of the view that the ripple effects of Brexit are not reflected in the pick-up in the economy and this might just be a temporary relief.
The service industry has been cited as the main influence in the pick-up. Transportation, retail trade and finance among other sectors expanded an annualized 0.5% a contract to a 4.8% contraction experienced in the same sector within the three previous months.
This growth contrasts sharply with a contracting manufacturing sector which fell to 0.3 percent from 18.4 percent within the same period. Strong motor vehicle sales boosted the retail trade sector and played a major role in the service industry growth. Overall the country’s economy expanded 2.2 percent in Q2 2016 which is in line with economists surveyed by Bloomberg.
In line with this improvement Monetary Authority of Singapore (MAS) announced it will not seek a currency appreciation during its April as it eased its policy stance.
China’s Banking Industry Reels under Highest Bad Loans Levels Since 2004
The increasing demand for financial integrity amidst a slowing economy has revealed that China’s Banks are grappling with a bad loan academic of unprecedented levels. The high levels of quick business loans are not only confined to the large commercial entities as even lower-tier banks are affected with some reporting delinquency rates of 20 percent on their books.
The situation at the larger institutions is no different with reports showing that the impact of the slowdown is affecting more people and corporates who are now unable to repay their loans. Three of the largest commercial banks in the country have already raised an alarm over the situation. In March, Industrial and Commercial Bank of China (IDCBF) released its loan performance report indicating non-performing loans spiked 44% in 2015 from the previous year.
IDCBF’s major rivals Bank of China (BACHF) and China Construction Bank (CICHF) decried a similar state of affairs with non-performing loans at BACHF jumping 30% and 47% at CICHF from 2014. The bad loans epidemic reaching $29 trillion are now a major of concern with the industry reporting $1 trillion losses. This is the lowest level since the onset of the global financial crisis around 2004.
While these large banking institutions are still making billions in profits to cover expected losses, there was hardly any growth in 2015. For instance, in 2015, China Construction Bank’s profits grew by just 0.1% from 2014. As the gloomy picture continues to unravel, there are fears that things could get worse. Banks such as the Bank of China (BACHF) have already issued profit warnings for 2016. The situation is reflected across the entire banking sector in the country.
At the same time, there are worries that the official numbers don’t even portray the real picture. CLSA (Credit Lyonnais Securities Asia) in its report indicates the official bad loans statistics being bandied around might not be a true reflection of the situation on the ground.
The brokerage firm says nonperforming loans are at least 9 times what the official figures are indicating. CLSA believes that nonperforming loans accounted for 15%-19% of outstanding credit in 2015. Potential losses in the banking industry might reach 6.9 trillion Yuan to 9.1 trillion Yuan based on public records of listed companies.
The reports on non-performing loans come in the backdrop of an earlier warning by the Governor of China’s Central Bank who decried the increase in overall debt levels among corporations. The reasons for the bad debt rise, according to a PWC Report, can be attributed to a 5-year loan consumption binge, the slowing economy among other factors.
While the Chinese officials are talking about options to relieve the huge debt burden by corporations, financial analysts are pessimistic about what measures can make an impact.