Total Singapore-dollar bank loans shrank to $272.2 billion at the end of December from $273.2 billion in November.

Singdollar loans also fell 1 per cent in November from October - the first monthly slide since December 2006.

New figures from the Monetary Authority of Singapore (MAS) yesterday show that business lending dipped from $159.6 billion in November to $157.8 billion in December.

'I think [the decline] is inevitable,' said OCBC Bank economist Selena Ling. 'We've been in a recession for two quarters... it's a bit like a tsunami and you can see it coming.'

Consumer-related loans tell a different story.

Housing and bridging loans - the biggest category of consumer lending - actually grew slightly, from $78.9 in November to $79.6 billion in December.

While overall bank lending - this comprises business and consumer loans - was up 17 per cent overall last year, lending growth this year is expected to slow sharply.

This is because banks have tightened credit standards while businesses and individuals have cut back on borrowing.

Standard Chartered Bank (Stanchart) economist Alvin Liew is bearish on the loans outlook and tipped in December that domestic loans this year will contract by 2 per cent.

Mr Liew stands by his forecast, even after the Government announced in last week's Budget that it will make another $5.8 billion available in a new programme designed to get banks lending to cash-strapped firms.

'The government measures will help but you cannot deny the weaker investment and consumer sentiment,' Mr Liew said.

Read the full story in Saturday's edition of The Straits Times.