Singapore banks to offer more affordable financial support to cash-strapped SMEs

Singapore

SINGAPORE's banking trio are offering more affordable financing support for small and medium-sized enterprises (SMEs) hit by the novel coronavirus fallout.

The banks will lower lending rates for government-assisted SME loans to about 2-3 per cent, backed by the Monetary Authority of Singapore (MAS)'s latest move to drive down the cost of funding for SMEs.

MAS on Monday said it will lend Singdollars at an interest rate of 0.1 per cent per annum to eligible financial institutions, which will in turn offer loans priced off near-zero funding cost to SMEs. The low-cost funding - to be offered in loans with a two-year tenor - will be provided under Enterprise Singapore schemes aimed at helping financial institutions make loans more affordable to SME borrowers, MAS and Enterprise Singapore said in a statement.

This comes as United Overseas Bank (UOB), OCBC Bank and DBS Bank register a surge in demand for SME loan applications in March. Cash flow concerns among SMEs have become more acute in the current "circuit breaker" period. The trio have since publicly committed to waiving processing fees for loan applications.

Singapore's largest lender DBS disclosed that it disbursed in March twice the number of loans and total loan quantum for government-assisted SME loans, such as the SME working capital loan, compared with a year ago.

The bank will pass on cost savings from MAS's facility to its SME customers, who will benefit from lower lending rates of around 2-3 per cent. It has also waived all processing fees for the new loans since April 1.

"We expect this momentum to continue at least into the fourth quarter of the year when the demand for goods and services is expected to pick up again. However, this will depend on the stabilisation of the Covid-19 situation in Singapore and the region," said DBS group head of SME banking Joyce Tee in a statement on Monday.

In recent days, the bank has received requests on moratoriums on almost S$1.6 billion of SME loans. It has also received more than 8,000 requests for mortgage relief in Singapore. DBS has approved more than 1,200 loans worth over S$1 billion under the government-assisted programme.

Meanwhile, UOB has seen a significant increase in the number of loan applications for the SME working capital loan and temporary bridging loan schemes, with approvals growing close to 60 times compared with the same period last year.

"We expect this demand to continue and remain committed to helping our customers see through to better times. The (MAS) facility will reduce our funding costs, enabling us to pass on these savings in full to our SME customers and to provide them with much-needed funds at lower interest rates of between 2-3 per cent during this crucial point in time," said UOB head of group commercial banking Eric Tham in a statement.

The facility, coupled with Enterprise Singapore's higher risk-share for their loan schemes, will support the bank in providing more SMEs, including those that may have previously been ineligible, with essential financing support, said Mr Tham.

Earlier this month, the Singapore government increased its risk sharing of loans from 80 per cent to 90 per cent for some SME loans.

UOB has since redirected its resources to ensure that customers can access this much-needed cashflow injection, with the majority of them being able to draw down on the loan within five working days.

While the virus fallout has affected businesses of all sizes, the impact on smaller businesses (those with an annual turnover of below S$20 million) is particularly acute. "Small businesses tend to operate with limited resources and tight margins and often do not have the liquidity required to sustain a prolonged economic shock," said UOB head of group business banking Lawrence Loh.

Mr Loh noted that UOB loans provided to small businesses in March increased by 3.5 times, compared with January this year. Among the small businesses obtaining loans, about a third have an annual turnover of less than S$1 million.

OCBC is expecting the amount of government-assisted loans it lends out to small businesses to hit S$1 billion by June 30, fully utilising the support given by MAS. This expected loan amount will exceed the total government-assisted loans disbursed to the same customer segment during the 2008-2009 global financial crisis, said the lender in a statement on Monday.

The bank added that in passing on in full the cost savings from MAS's facility to customers, the interest rate of the government-assisted temporary bridging loan will fall to 2-3 per cent. As it is, with the enhancements to the Enterprise Singapore scheme announced in March, this rate had already been revised down to 3-4 per cent. At the start of the year, the rate was 6 per cent.

Further cost savings will be derived from the waiver of OCBC's loan processing fees. With a loan approval period of two days and disbursement of funds within a week, the bank said it seeks to address quickly the pressing cash flow needs of small businesses affected by the novel coronavirus outbreak.

OCBC registered a spike in the volume of applications for relief measures in the last two months by more than 10 times. The manufacturing, construction, trading and distribution, and services businesses are increasingly turning to the bank for support, said the bank.

Close to 1,000 small businesses have asked for deferment of principal payments on unsecured and secured SME loans. For the larger SMEs with annual turnover above S$20 million, the bank has seen a similar surge in requests for funding relief, and the amount to this segment of SMEs has also exceeded the support given during the global financial crisis.

"In reaching out to our small business customers over the past three months, we have seen how they have had to adapt to cope with the new challenges and have been very responsive to the initiatives to relieve the stress on their operating cash flow from the loan moratoriums as well as the new Enterprise Singapore loans. We will ensure that no SME with a viable business model hit by Covid-19 is turned away," said OCBC head of global commercial banking Linus Goh.

The bank has also digitalised the process and simplified the loan requirements for existing customers. Where hard copies of documents were previously required, electronic copies with digital signatures are now accepted during this circuit breaker period.

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