Amid growth concerns worldwide and a looming transition back to normal interest rates in the U.S., the boss of Singapore's Oversea-Chinese Banking (OCBC) is cautious of the credit environment ahead.
"Over the past two to four years, the credit environment has been so good that it is almost abnormal. So as we go back to a more normal credit environment, it is going to be tougher than last year," group CEO Samuel Tsien told CNBC's "Managing Asia."
A recovery in the world's largest economy is paving the way for a lift-off in U.S. interest rates, which many analysts expect to take place in September. With the three-month Singapore interbank offered rate, or SIBOR, closely linked to the U.S. Federal funds rate, that liftoff will likely pull the city-state's lending rates higher as well. The Sibor hit a 6-year high of above 1 percent in March and was at 0.8788 per cent on Thursday.
But even though deposit rates have been rising more slowly, lenders in Singapore may not see a boost in net interest margins this year.
"If everything is equal, a rising interest rate will be good for the net interest margin. However the market that we are in right now isn't equal so there will be less loan demand [and] more competition, which lead to margin pressure," Tsien said.
An improvement in margins may depend on both the U.S. and China, which unfortunately are set on diverging growth paths. While many analysts expect the U.S. economy will likely get back on track within the next 12 months, growth continues to falter in the Asian economic giant.
"As we expect China's growth to be subdued for the next two years, there may be an offset, so strong loan growth [moving forward is unlikely]," he told CNBC.
Meanwhile back home, OCBC is feeling the pressure from a slowing property market as new home loans fall. Tsien said the worst isn't over and volumes of housing loans in the year ahead will likely extend 2014's 40 percent year-on-year slump due to property cooling measures.