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Finance firms' loans hitting records on relaxed SME lending rules

Singapore's biggest finance firm, Hong Leong Finance, said loans rose 5% year to date to S$10.3 billion - the highest in its 57 years of history

Ang Tang Chor, president of Hong Leong Finance: "There is more flexibility in our customisation of funding solutions to meet the specific needs of our SME clients."

Lee Sze Siong, Sing Investments & Finance deputy managing director: "With the liberalised rules, SIF is able to offer a more holistic product bundling to our SME customers."


SINGAPORE's finance companies are on a roll with loans boosted by the liberalised rules on lending to small and medium enterprises (SMEs).

Hong Leong Finance (HLF) and Sing Investments & Finance (SIF) have seen their loan books hit all time highs as they extend more credit to SMEs, their biggest client segment. They have also been selling more property loans.

In its Q3 2018 results, HLF, Singapore's biggest finance company, said loans rose almost 5 per cent year to date to S$10.3 billion, the highest in its 57 years of history. At SIF, loans gained 8.7 per cent to hit S$2.07 billion in the first nine months of 2018. Singapura Finance, the third and smallest finance company in Singapore saw its loans fall; year to date it was down 7.1 per cent to S$694 million.

On HLF's loan growth so far this year, Ang Tang Chor, the firm's president, said it was from several sources. Loans with strong demand include an SME programme, working capital loan, equipment loan, property loan and hire purchase, he said.

"The relaxation of restrictions by the MAS such as raising the limit of uncollateralised business loans has provided us with the capability to assist more SMEs with cash flow financing," said Mr Ang.

More flexibility

"There is more flexibility in our customisation of funding solutions to meet the specific needs of our SME clients. More accessible funding options are made available to SMEs that generally have few assets to pledge," said Mr Ang.

The Monetary Authority of Singapore (MAS) relaxed rules for finance companies to offer unsecured loans to SMEs last year. Effectively, it meant finance companies could extend collateral-free loans to small businesses.

SMEs are faced with a longer asset conversion cycle for debtors are taking longer to pay them back, said Mr Ang. "Demand for cash flow financing is very strong as cash flow is the lifeline for businesses. They are also borrowing to meet their working capital needs," said Mr Ang.

HLF offers a wide variety of cash flow financing solutions to fit different business needs - from revolving credit lines to accounts receivable financing, factoring and supplier invoice financing and customised innovative financing solutions to meet project delivery and trade-specific requirements.

Mr Ang said many SMEs are restructuring and investing in capabilities to strengthen their business and become more effective and efficient.

"We also noted that there is a growing emphasis on digitisation especially in the areas of business operations and finance," he said.

"With the liberalised rules, SIF is able to offer a more holistic product bundling to our SME customers," said Lee Sze Siong, SIF deputy managing director.

The first half of 2018 was pretty good for the firm, the property market was also buzzing, and we took the opportunity to do more loans, said Wang Choon Siong, SIF head of credit marketing and senior vice-president.

Previously, a finance company was mainly restricted to offering hire purchase loans to SMEs to help them buy machinery, Mr Wang elaborated.

Now finance companies can offer working capital to SMEs to finance the purchase of raw materials, and see them through to the production and the finished goods stage, said Mr Wang.

"We can finance SMEs for the entire business cycle, the relationship is thicker," he said.

Finance companies can now offer current accounts to SMEs and this lets them also monitor customers' cash flow, he said. "We can see their cash flow, via the current account, their collections and any hiccups in between," Mr Wang said.

"With the liberalised rules, we can provide more than 90 per cent of what SMEs require," he said.

Still, finance companies face keen competition from banks for the SME business, he noted. In Q2 2016, the three finance companies accounted for just under S$7 billion or 8.5 per cent of total outstanding SME loans of S$82.6 billion.

There are over 210,000 SMEs in Singapore. The SME market will remain a key focus for our business growth, said HLF's Mr Ang.

"The economic climate remains challenging as SMEs become more competitive and productive. However, we continue to see opportunities in serving them well and will help them stay ahead of the competition with new innovative and relevant financing solutions," he said.

New financing programmes

HLF is also doing well with its mortgage equity loan launched in March 2017, he said.

"We are also very encouraged with the success of our award-winning mortgage equity loan programme ME@50 rolled out in March 2017 in support of the regulatory relaxation of borrowing against the value of private properties to enable borrowers to monetise their assets in their later years," he said.

HLF is the first financial institution to introduce the loan programme where the total debt servicing ratio framework for mortgage equity withdrawal loans with loan-to-value ratios of 50 per cent and below is relaxed, he said.

ME@50 allows individuals in their retirement years to cash-out with a term loan up to 50 per cent of private residential property value without having to sell the property and also enjoy the unique flexibility to make early loan repayment without penalty to save interest cost, he said.

"ME@50 has empowered 50- and 60-something baby boomers to make different life choices that they did not have before. ME@50 serves the diverse needs of our customers well in their retirement years, be it for their new business ventures, settlement of family issues, business transformation, home renovation or helping their children to achieve their dreams by supporting their education," said Mr Ang.