Covid-19 aid: Banks should put moratoriums on table

THE ongoing Covid-19 pandemic has left many who face job cuts and layoffs wondering how they are going to pay their bills.

Once mighty household names, too, are struggling with the economic fallout from the virus outbreak. Many are frantically trying to manage their cash flow at a time when there is virtually no revenue but still need to meet fixed overhead expenses. There is a limit to how much variable costs they can slash. They are left assessing how long they can go on without becoming insolvent as cash reserves dwindle and credit lines dry up.

Even national carrier and icon Singapore Airlines (SIA) is not spared as travel is disrupted. One can only imagine the plight of citizens as well as small and medium- sized enterprises (SMEs) without deep pockets.

Already, banks including local big boys DBS, OCBC and UOB have taken their own initiatives and announced a slew of measures to help ease financial burdens of customers - both individuals and companies affected by the pandemic.

Last month, UOB announced virus relief measures in Singapore for companies, especially SMEs. Measures include allowing affected businesses to rework their principal repayments and to service only their loan interest for up to one year; extending up to one year working capital financing of up to S$5 million; and offering financing liquidity against mortgage security.

OCBC Bank too offered targeted support measures to help customers across its core markets affected by the virus. Measures include allowing customers to restructure their loans, including home mortgages and business loans; providing a moratorium on principal repayment for loans, including home mortgages and business loans as well as extending bridging loans in the form of additional working capital financing to affected businesses.

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Rival DBS is offering a six-month debt moratorium on principal repayments for property loans extended to SMEs in Singapore and Hong Kong, as well as on mortgage loans for homeowners in Singapore.

Efforts have been piecemeal. Given these unprecedented and challenging times, it is time for the Monetary Authority of Singapore (MAS) to be more prescriptive in its guidelines. The central bank, which already works closely with banks, should step in and galvanise banks to come together in a more concerted manner in rendering Covid-19 aid packages. It would also help banks if they knew what capital relief the central bank can offer to lessen their pains as they help clients through this liquidity crunch.

Relief measures should be more precise and consistent, even as banks exercise more flexibility. Such prescriptive guidelines could include an automatic moratorium on loans, financing repayments and payments of principal and interest. It should also state whether such an automatic moratorium will be extended to all loans such as credit card balances and mortgages.

Such instructions will help alleviate anxiety over payment obligations that are due, when global operations are practically shuttered by the virus. It will also relieve some of the banks' resources to try and deal with customer's requests for deferment on a case by case basis, given that this pandemic is affecting every company.

Of course, ultimately, banks have to make their own credit assessments, based on the credit worthiness of their customers. A customer whose business fundamentals had been rock solid before the Covid-19 outbreak, but faces cash flow problems now due to various factors, should be given a lifeline to survive this period, and emerge stronger. In contrast, the same consideration should not be given to one whose business was already floundering even before the pandemic. After all, banks have to ensure that their credit decisions are sound. They owe it to investors, employees and depositors.

Banks still need to offer suitable workout plans for customers to repay or service loans after the moratorium period. Borrowers must bear in mind that these temporary suspensions should not be considered free handouts, but loans to be repaid when they get back on their feet.