Across vintages, SMEs to seek liquidity buffer for long winter

Singapore

SEASONED small- and medium-sized enterprises (SMEs) that have weathered cycles through the years are assessing their liquidity while on good credit standing, even as they have an estimated 30-40 per cent of their existing credit lines still untapped, a top banker from OCBC said.

Meanwhile, smaller, younger companies are already likely under stress, especially those not looking that far out to brace for a long winter, OCBC's head of global commercial banking Linus Goh told The Business Times on Wednesday.

Still, despite this differing behaviour on either ends of the spectrum, more across all sizes and industries are expected to take up further virus relief measures.

When the virus first broke around Chinese New Year, those in the first line of fire, such as tourism, came first seeking relief, said Mr Goh.

"By the middle of February, when it became more obvious that the guys in trade or manufacturing were starting to have problems with supplies, they started to feel that (they) needed to go and get some (lending) facilities," he said. "It's very hard to say now who is not affected."

Mid- to large-sized companies in the SME space with roughly S$30 million in sales would have been around for at least 10 years.

"Experience will have taught them that this is the time to shore up liquidity. There will be those who are not hard-pressed for now, they may have cash reserves to last them another six to 12 months, but they may still say, 'I may not know what's going to be ahead, I will take a temporary bridging loan as an additional thing in my back pocket'," said Mr Goh.

"They have more established relationships with banks and some reserve capacity with the banks. And for those types of names, the pricing on the loans are better, because they represent a better risk."

For smaller firms, there are more stresses, especially if their cashflow can only cover them for the next few months. These include companies that rely on daily takings. "So when one day, one week, one month (of sales) doesn't come through, that's already a stretch," said Mr Goh.

The Monetary Authority of Singapore on Tuesday outlined, among other things, that banks and finance companies must allow deferments through to the end of the year of principal repayments of secured corporate loans. This standardisation comes as each financial institution here has come up with its own relief assistance in quick succession.

Mr Goh said the latest move takes more guesswork out of the game for SMEs in that businesses can now plan for their funding needs over the next nine months or so. It also removes a stigma in applying for relief.

Asked if banks are already taking a discount off security values for term loans secured against such collateral, Mr Goh said collateral such as properties are usually assessed on a "regular cycle", and discounts are not "accelerated because of events".

With the unprecedented lockdown across the world, a second wave of impact on supply chain and demand is being felt by the businesses. Just as some SMEs in Singapore found alternative sources of supplies from China at a higher cost, the lockdowns have now made the diversification hard to execute, Mr Goh said.

With this, as China restarts its engines, SMEs here are returning to source for supplies within China.

"It's about whether the supplies can be delivered," Mr Goh said. "There is some glimmer of hope because China is coming back to work."

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