Financial services sector remains weak

MTI data indicated that financial services has been one of the poorest performers in Singapore's economy in recent months.
MTI data indicated that financial services has been one of the poorest performers in Singapore's economy in recent months. PHOTO: REUTERS

Finance and insurance sector shrank 11.2% in Q2, largely due to weak banking segment

Financial services - a long-time pillar of growth for Singapore's economy - has been one of the worst performing sectors in recent months, with banks mainly to blame.

Ministry of Trade and Industry (MTI) data out yesterday showed that the finance and insurance sector shrank 11.2 per cent in the second quarter over the first quarter.

This followed a 14.2 per cent quarter-on-quarter nosedive in the first three months of the year, underlining continued sector weakness.

Sectoral growth slowed from 2.7 per cent in the first quarter compared with the same period last year to 0.8 per cent in April to June year-on-year - the slowest pace since the third quarter of 2012, OCBC Bank noted yesterday.

MTI said the weaker showing in the finance and insurance sector was largely due to the banking segment, as "persistent regional headwinds" put a drag on lending.

Corporate loan volumes slipped 6.2 per cent in the quarter, with a pullback in loans extended to trade-related segments such as general commerce and manufacturing.

"At the same time, fees and commission received by banks turned in a dismal performance, alongside the dampened demand for banking services such as portfolio management and trade financing," MTI's latest economic survey said.

The decline was partly offset by stronger performance in the insurance segment and activity in the foreign exchange market.

"It has been a difficult year for fund flows. The first half was not easy, after January; after the second renminbi adjustments... there was very little interest in emerging markets and Asia," said Ms Madeleine Lee, managing director and chief investment officer of Athenaeum, a Singapore investment management company.

Recruitment consultants expect banking employers to be cautious in the hiring of new talent - and more likely to scrutinise the need for additional headcount.

"As banks seek flexible hiring solutions, we foresee that there will be an increase in demand for candidates open to interim or contract work," said Mr Tim Klimcke, director of financial services at Robert Walters Singapore.

TOUGH YEAR

It has been a difficult year for fund flows. The first half was not easy, after January; after the second renminbi adjustments... there was very little interest in emerging markets and Asia.

MS MADELEINE LEE, managing director and chief investment officer of Athenaeum, a Singapore investment management company.

DBS Bank economist Irvin Seah expects the outlook to remain challenging for the financial services sector, owing to risks from China and the euro zone as well as the weak business sentiment, which will crimp bank lending.

"At best, even if the financial services segment bounces back to positive growth on a sequential (quarter-on-quarter) basis, it won't be very strong... When a main engine of growth is in reverse gear, obviously the entire economy will be affected ," Mr Seah said.

The banking industry also faces risks from the struggling oil and gas sector, with concerns that non-performing loans (NPLs) could rise.

The Monetary Authority of Singapore (MAS) said yesterday that it expects the spillover effects to the financial sector to be "contained", given the banks' relatively limited exposure to the oil and gas sector.

"Local banks' overall oil and gas exposures are limited, comprising less than 6 per cent of total non-bank loans, and overall oil and gas NPLs remain low," said MAS deputy managing director Jacqueline Loh.

A version of this article appeared in the print edition of The Straits Times on August 12, 2016, with the headline 'Financial services sector remains weak'. Print Edition | Subscribe