Impact of Government’s COVID-19 Financing Schemes on Businesses

Mr Speaker, Sir, as SMEs are a vital part of our economy, the Monetary Authority of Singapore or MAS, and Enterprise Singapore or ESG, are working closely with the banking sector to ensure that SMEs continue to have access to the financial support they need to tide through this difficult period. This is done through the ESG loan schemes.

The loan schemes have seen strong interest. Based on ESG’s data, SME borrowers have applied for more than 2,500 loans amounting to about S$1.9 billion since the beginning of March this year. This is about six times the credit extended over the same period last year. The approval rate of these loan applications has been high, at 90% to 95%.

Under the ESG loan schemes, the Government takes 90% of the loss if a loan goes bad, with the banks assuming the remaining 10%. This has helped bring down the credit spread that the banks charged.

The ESG loan schemes were then further enhanced when MAS launched a new Singapore Dollar facility for the banks and finance companies. It provides them with fully collateralised funding for two years at an interest rate of 0.1% per annum, for the purpose of their loans under the ESG schemes. This funding differs from the existing five-year, uncollateralised funding provided by the Government.

Together with the earlier enhancements to the ESG loan schemes, this is expected to bring down interest rates for such loans to 2%-3% for most borrowers, compared to 6% or more for most other unsecured working capital loans to SMEs today.

We have also seen good take-up of the complementary set of relief measures to help SMEs during this period. These measures were announced earlier by MAS and the financial industry. They include enabling SME borrowers with secured loans to defer principal repayments until 31 December 2020. Many SMEs have requested to do so. As of 30 April 2020, more than 2,500 applications have been processed, with nearly all applications approved. More than S$4.5 billion of secured loan facilities have benefited from this measure to-date.

MAS and ESG will continue to monitor the effectiveness of our measures.

Thank you, Speaker. I thank the Minister for the very encouraging set of numbers that he has revealed, about six times' increase.

Nevertheless, Minister, amongst the SME circle, the expectations seem to be varying. Many people are focusing that the Government has committed to risk-share at 90% and made cost of fund available at 0.1% for these SME loans. So, the feedback so far has been that actually the rates offered by banks have been quite different and they feel that the rate has yet to reflect the Government's support. So, I would like to ask the Minister for his view – three questions.

The loan application volume – yes, we have seen significant increase but it is unusual times, so the loan volume and the interest rate, whether these are in line with the Government's policy intention; is it seeing the volume it expects?

Second, with 2%-3%, yet Government offering 90% risk-share and 0.1% interest rate, whether SMEs' expectation for lower market interest rates are reasonable?

And third, some SMEs have said the banks' requirements for SMEs to provide personal guarantees are too demanding and not commensurate with the banks' risk exposure; so, whether the Minister thinks these requirements are reasonable.

Mr Speaker, Sir, a few points. First, the cost of fund is just one component of an interest rate. Beyond that, there is a credit spread depending on the risk profile of the borrower, and in this case, the Government going to bear 90% of the loan losses, that will bring down the credit spread. Then, there is also another component which is the bank's own cost, their administration costs. So, if you add up, it would be above 0.1%, which is just the cost of funds.

In April, most of the interest rates charged for ESG loans were between 2% and 4.5%. So, it has come down from before, which was 6% or more. So, I think, it is largely Government measures stepping in to lower cost of funds plus credit spread that have led to this outcome.

Whether the volume is according to our expectation, it is hard to say. It all depends on how deep the economic troubles will be. We certainly do not wish for the volume to be too huge. It means that the economic disruption is bigger, but I think the situation is still fluid. I think our measures are in place to answer to the needs of SMEs.

The Member had a last question.

Personal guarantee. So, the purpose of these ESG loans is to address an unexpected event – a black swan event – that is devastating to the economy and to many industries and firms. We want to make sure that firms do not just collapse as a result of this event. They are firms that otherwise would have been viable, which is why the Government put in a massive Job Support Scheme (JSS) and at the same time, provide these loans to help companies tide over. And I think to be able to pledge your personal assets, is an indication of the confidence of the business owner, that this is actually a viable business and that is worthwhile supporting it to tide through this difficult period.

Thank you, Mr Speaker, Sir. Just two questions for the Minister to follow up on that. One is in terms of processing times. So, there is still anecdotal feedback that the processing times are still quite considerable and there are some SMEs that are in distress and they need the credit to come in quickly. So, has the Government been tracking whether those processing times for the ESG loans have come down, is it trending in the right direction?

The second question is really in terms of personal guarantees. I suppose just to clarify, would the extent to which banks deploying these ESG loans ask for personal guarantees, does that also – are you seeing that also being reduced because of the 90% Government risk-share?

On the second question, I am afraid I do not have the data. But, as I explained to Ms Foo Mee Har, the personal guarantee is an indication of the confidence of the business owner on how viable the business is. And I think it is a necessary prudential measure. Since the Global Financial Crisis, I think all around the world banks have become stronger – stronger balance sheets, more capital. And I think it is fortunate that we went through this period and we now have stronger banks to meet the challenge of COVID-19. We want to make sure that banks use this balance sheet to be able to help economies, sectors, industries tide through, while maintaining their strength and resilience. That balance needs to be recognised and that balance needs to be struck.

As to the processing time, I do have some data. It ranges from one to eight days with the majority hovering around five days, four to five days. So, we will continue to track the schemes and make sure that it is processed efficiently and expeditiously.

I would think they should be eligible. Why not give us the details and certainly, MAS and ESG can look into it.