Mortgage borrowers, SMEs can seek to defer certain debt repayment till year-end: MAS

DISTRESSED homeowners can soon apply to banks or finance company to defer either just the principal payment or both principal and interest payments, by up to December 31, 2020, amid the virus outbreak, according to latest measures by the Monetary Authority of Singapore (MAS) and industry bodies that will be rolled out from April 6.

Interest will accrue only on the deferred principal amount, meaning that no interest will be charged on the deferred interest payments. With mortgages, lenders will approve the request for deferment as long as the individual is not in arrears for more than 90 days as at April 6, 2020. Individuals do not need to demonstrate any impact from Covid-19 to secure the deferment.

Individuals with unsecured credit facilities from banks or other credit card issuers may also apply to their banks to convert their outstanding balances to term loans at a reduced rate of interest, capped at 8 per cent, as compared to the 26 per cent that is typically charged on credit cards. The term of the converted loan can be up to five years, depending on the individual's ability to meet the minimum monthly repayment.

This option is available to all individuals who have suffered a loss of 25 per cent or more of their monthly income after February 1, 2020 and are at risk of incurring substantial arrears. Individuals may apply to their lenders for conversion of their outstanding unsecured debt from April 6, 2020, till December 31, 2020.

At the same time, more than S$40 billion of secured borrowings held by small- and medium-sized enterprises (SMEs) are estimated to qualify to have their principal payments deferred by banks and finance companies by up to the end of this year amid the virus outbreak, MAS said on Tuesday.

This is subject to banks' and finance companies' assessment of the quality of the SMEs' security. Besides secured term loans, banks and finance companies are also expected to work with SME customers to adjust their loan repayment schedules for other types of loan facilities.

SMEs will also be able to extend the tenure of their loans by up to the corresponding principal deferment period, if they wish. This relief will be available to SMEs that continue to pay interest and again, when they are in good standing with their banks and finance companies, that is, having not more than 90 days past due as at April 6, 2020.

"The relief for individuals and SMEs will be provided on an opt-in basis, as their cashflow circumstances will differ," said MAS.

Banks and finance companies may also apply later for low-cost funding through a new MAS Singdollar Facility for loans granted under Enterprise Singapore's SME Working Capital Loan scheme and Temporary Bridging Loan Programme. Banks and finance companies can apply for these funds until end of December 2020, but only if they commit to pass on the savings in funding cost to their SME borrowers. This initiative could lower the interest rates charged to eligible SME borrowers.

MAS has also announced relief measures for individuals and corporates holding general insurance policies.

To be clear, to take a pause on debt via deferment means that customers will have to foot the bill later, and the deferment will lift their total payments. This is similarly so for insurance policyholders who choose to defer their policy instalment payments.

"Deferring payments increases future obligations and hence borrowers and policyholders should weigh their options carefully. Financial institutions will process all applications expeditiously," MAS said.

The Singapore banks have set out their own relief packages, and all involve stretching out repayments to customers and offers of cashflow assistance, though the trio have underlined that these would go to credit-worthy customers that they think will have a fighting chance in bracing against the virus outbreak.

That being said, the terms have varied.

UOB was the first bank to announce that it would set aside S$3 billion to provide Singapore-based companies, especially SMEs, with relief assistance. Its relief included allowing affected businesses to rework their principal repayments and to service only their loan interest for up to one year.

OCBC followed up a day after with an offer of targeted support to customers across its core markets, including Singapore, Malaysia and Hong Kong, that have been affected by the virus outbreak.

Its offer at that point included a six-month principal moratorium for business loans, collateral-free temporary bridging loan of up to S$1 million with flexible repayment period, and working capital financing of up to S$600,000 at "attractive" rates.

OCBC, like DBS, did not put a final number on the estimated size of its relief assistance.

DBS said that it would provide SMEs with liquidity relief packages to address their "most urgent cashflow needs". In DBS's case, it offered a six-month principal repayment moratorium for SME property loans, and an extension of import facilities of up to 60 days.

The banks also had their own criteria for repayment moratoriums for mortgage loans.

The latest move by the Singapore regulator goes some way to standardise the terms of various relief packages announced by Singapore banks in the wake of the virus outbreak that fanned out across the globe in a mere few weeks.

The novel coronavirus pandemic has infected more than 786,000 people around the world. It has set off a demand shock globally, with top brands shutting stores, and employees being laid off or put on no-paid leave grappling now with no income and bills due. With countries implementing various forms of lockdown and social-distancing measures, businesses particularly hurt by the crises, including airlines and hotel chains, have labelled the Covid-19 outbreak as their greatest crisis in the history of their operations.

The United States, which commands the world's largest economy, now has the most confirmed cases globally at more than 160,700. More than 3,000 people have died there.

Over in China, where the virus began in December 2019, its purchasing managers index in March leapt from a month ago. But the pain from the shutdown of economic activity in China in the opening months of 2020 - and now, in other parts of the world - means businesses are unlikely gunning at full throttle yet.

Singapore, an open economy, is likely to see the deepest economic contraction since the Republic's independence. The Singapore economy is expected to contract by between one per cent and 4 per cent in 2020, with the official forecast downgraded just this month.

As at 12pm on March 30, Singapore has reported 879 novel coronavirus cases. Three have died.