Singapore

THE Monetary Authority of Singapore (MAS) is studying the delicate balance of when and how to ease virus relief measures, so as to mitigate unintended "cliff" effects when these helplines expire towards the end of the year.

While the support helped alleviate cashflow pressures faced by individuals and businesses, it is unsustainable to have them continue indefinitely, said MAS managing director Ravi Menon at the release of MAS's annual report on Thursday.

"Deferred payments provide only temporary relief and come with additional costs," he told the media.

MAS is now engaging the banks, finance companies and insurers on how best to ease borrowers and policy holders into gradually resuming repayments.

"Our hope is that the economic situation improves to the point where (borrowers) can start making some repayments. Not all, but it can't be zero," said Mr Menon.

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He stressed that the pace of relief withdrawal needs to balance between the cashflow situation of the borrowers against the accumulation of more debt that could raise the risk of default later. "If the banks have to take large losses, it affects their ability to lend to the rest of the economy. That is a trade-off that we're considering. We can't withdraw all of that relief suddenly because that will create big problems," he noted.

The Singapore government has injected S$71 billion into the economy since the virus fallout, after accounting for capital set aside for loan guarantees. More than 5,300 SMEs' secured loans now enjoy repayment deferments till end-December 2020.

Nearly 34,000 mortgage loans also enjoy deferment of principal or interest payments, or both. Based on previous estimates taken in April, this would roughly account for 6 per cent of total mortgage loan values here and represent an estimated 4 per cent of households that still have outstanding home loans.

Mr Menon said: "We have to make careful assessments and see what is in gradual unwinding. There are many viable firms out there who can make it in the post-Covid-19 world, and need just a bit more support for a longer period of time because conditions have not improved. We can't pull the rug from under them."

Roughly 12 per cent of the Singapore economy is at the "epicentre" of the Covid-19 crisis.

Companies in sectors that are in the eye of the storm - specifically in construction, travel-related, and consumer-facing services - are expected to take some time to recover.

"While we may see strong positive sequential growth in the second half of this year for those activities, it will not be sufficient to restore activity to pre-crisis levels," said Mr Menon.

Kurt Wee, president of the Association of Small and Medium Enterprises, told media that businesses would still need the support of MAS for some time, with the virus impact to "stretch well into next year".

"Businesses have been asked to hold jobs and we hope MAS will not wind down help," he said.

MAS expects the global economy to grow by 3.5 per cent in the second half of this year, following an estimated contraction of 5.5 per cent in the first half.

With Singapore staring at a much-deeper recession than expected, some firms are expected to close shop when relief measures dry up.

This comes as certain industries or activities may be "permanently impaired" by the Covid-19 crisis due to a range of factors, including a shift in supply chains and consumer demand patterns.

"If the structure of the economy has changed in some ways, firms in those affected parts of the economy are not likely to survive, or do very well, especially if they have high leverage to start with or are not too profitable to start with," explained Mr Menon.

Even if gross domestic product (GDP) growth picks up in the second half of the year, the tail effects from the first half will mean more corporate bankruptcies, he cautioned.

"Some of that is inevitable, some of that is a natural part of how the economy adjusts and restructures so that resources flow into new areas, unprofitable businesses go out and new ones emerge," said Mr Menon. "But we want to make sure that this process is well managed and orderly."

He also noted that the property market has remained stable, in part due to macroprudential measures in place and new temporary relief measures in response to the pandemic.

"At this point, there is no need to adjust the existing cooling measures."

According to Mr Menon, the stabilisation of the property market has "substantially reduced" its vulnerability to the Covid-19 shock.

"If property prices had been rising rapidly as we entered the Covid-19 crisis, we could have seen a sharp and painful correction," he added.

The adjustment of the property market has been modest, with property prices moderating in an "orderly manner" in recent months.

Separately, MAS said the investment return from the official foreign reserves was S$16.3 billion in FY2019/20. This comprised investment gains of S$2.1 billion, and a positive currency translation effect of S$14.2 billion.

MAS made a net profit of S$10.6 billion in FY2019/20, after deducting S$3.5 billion of expenses from domestic money market and other operations, as well as contributing S$2.1 billion to the government's consolidated fund, as payment in lieu of corporate income tax.

This year, MAS will return half of its profits - that is, S$5.3 billion - to the government, with the remainder added to MAS's reserves.

READ MORE: MAS reviewing banks' capital plans, including dividend payouts