By Emilyn Yap

CORPORATE loan growth is likely to slow as companies delay expansion plans in a cooling economy, OCBC Bank said yesterday. While the bank is still ready to lend, finance will cost more and entail more scrutiny.

Loan growth in the first three quarters of the year has been strong, said the global head of OCBC's global corporate bank Samuel Tsien. But 'starting from the fourth quarter, we do see a slowdown in the growth of loans, and I believe this situation will carry forward into at least the first half of next year'.

One reason is that companies have become more cautious about expansion as volatile market conditions hit consumer confidence and dampen demand, he said.

A report by Citi Investment Research last week also predicted a drop in overall loan growth across the three domestic banks, from 20-plus per cent last year to about 7 per cent in 2010.

But even in a tougher climate, OCBC is prepared to lend money to sound businesses in all sectors. Some companies 'probably have some reservations as to (whether) the banks are still in business', said Mr Tsien. 'We want to send the message out that we're still there. We have the ability, we have the capital and we have the liquidity.'

To help spread this message, OCBC launched 'Business Banking Made Easy' advertisements in Singapore and Malaysia this month. The campaign promotes the OCBC's corporate banking services to big and small companies alike.

Expectedly though, loans will be dearer. 'The cost of borrowing has increased, but so has the banks' cost of capital,' said Mr Tsien. 'We have to make sure the right cost is passed on to the customer.'

Companies can expect banks to examine their businesses more closely. Take the property sector, which could face falling prices and slowing demand, as several analysts have projected. 'We have to make sure that developers price (properties) at a level at which they can sell. We don't particularly want (companies) to build inventories,' Mr Tsien said.

Credit underwriting will also focus on more sensitivity tests and balance sheet analyses. In particular, leverage and cashflow numbers will help determine ability to manage debt.

But beyond cold, hard numbers, banks will still take customer relationships into account in giving loans, said Mr Tsien. 'During the good times, sometimes we see companies pursuing transaction relationships with banks - they go for the lowest pricing, they go for the best terms. (But) during tough times, the relationship does count.

'Banks will help customers (they) understand - the longer the relationship, the better the understanding.'

This article was first published in The Business Times on October 22, 2008.