Singapore banks to lower lending rates to 2-3% for SMEs under latest MAS facility

SINGAPORE's banking trio will lower lending rates for government-assisted small and medium-sized enterprises (SMEs) loans to about 2-3 per cent, backed by the Monetary Authority of Singapore's (MAS) latest move to make funding more affordable for SMEs mauled by the novel coronavirus fallout.

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 the schemes from Enterprise Singapore (ESG), in an aim to help financial institutions to make loans to SME borrowers more affordable, MAS and ESG said in a statement.

This comes as the three local banks have registered a surge in demand for SME loan applications in March, as cash flow concerns grow more urgent for SMEs in the current "circuit breaker" period. Both DBS and OCBC have also committed publicly to waiving processing fees for loan applications.

Singapore's largest lender DBS disclosed that in March it disbursed 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' 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.

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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 as well more than 1,200 loans worth more than S$1 billion under the government-assisted programme.

Meanwhile, UOB saw 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 ESG'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 in April, 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 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 a 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.

OCBC said that in passing on in full the cost savings from MAS' facility to customers, the interest rate of the government-assisted temporary bridging loan will fall to 2 per cent to 3 per cent. As it is, with the enhancements to the ESG scheme announced in March, this rate was already revised down to 3 per cent to 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 the bank'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 quickly address 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 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.

These loans are part of OCBC's virus relief package rolled out to help businesses amid the virus outbreak. The bank said it has digitalised the process and simplified the loan requirements for existing customers. Where hardcopies of documents were required before, electronic copies with digital signatures are now accepted during this circuit breaker period.

OCBC head of global commercial banking Linus Goh said: "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 ESG (Enterprise Singapore) loans. We will ensure that no SME with a viable business model hit by Covid-19 is turned away."