MAS and Financial Industry to support SMEs affected by the COVID-19 pandemic

The Monetary Authority of Singapore (MAS), together with the Association of Banks in Singapore (ABS), the Life Insurance Association (LIA), the General Insurance Association (GIA), and the Finance Houses Association of Singapore (FHAS), announced on 31 March a package of measures to help ease the financial strain on individuals and SMEs caused by the COVID-19 pandemic.

The package of financial measures complements the initiatives in the Government’s Unity Budget and Resilience Budget to preserve jobs and support enterprises and households.

The COVID-19 outbreak is now global, and increasing in intensity. Stringent measures are being adopted around the world to contain the virus, severely curtailing economic activity. Uncertainty about the trajectory of the pandemic and the depth and duration of an economic recession have also created strains in financial markets globally, which can in turn accentuate the economic crunch.

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The Singapore economy contracted sharply in the first quarter of this year, faced with the sudden decline in external demand, disruption in supply chains, and reduced spending at home. MAS expects the economy to remain weak beyond the first half of the year.

In the months ahead, many SMEs in Singapore will continue to face challenges in managing their cash flows and meeting their financial obligations, such as loan repayments and insurance premiums.

MAS and the financial industry have collaborated on a package of measures to SMEs facing temporary cashflow difficulties to ride through the storm. SMEs will be supported with continued access to bank credit and insurance cover, while steps will be taken to ensure interbank funding markets remain liquid and well-functioning.

The relief will be provided on an opt-in basis. Deferring payments increases future obligations and hence borrowers and policyholders should weigh their options carefully. Financial institutions will process all applications expeditiously.

Supporting SMEs with Access to Bank Credit and Insurance Cover

Banks and finance companies in Singapore have committed to help ease the financial strain on SMEs arising from the need to make principal repayments on their loans during this period, in view of the temporary cashflow constraints that many may face.

SMEs may opt to defer principal payments on their secured term loans up to 31 December 2020, subject to banks’ and finance companies’ assessment of the quality of the SMEs’ security. 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 are in good standing with their banks and finance companies (not more than 90 days past due as of 6 April 2020).

It is estimated that more than S$40 billion of existing loan facilities to SMEs will likely qualify for this opt-in relief scheme. Besides secured term loans, banks and finance companies also stand ready to work with SME customers to adjust their loan repayment schedules for other types of loan facilities.

Lower Interest on SME Loans

Banks and finance companies may apply for low-cost funding through a new MAS SGD 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 December 2020, provided they commit to pass on the savings in funding cost to their SME borrowers. This initiative will potentially lower the interest rates charged to eligible SME borrowers. Details will be provided at a later date.

Assistance with Insurance Premium Payment

Corporates, including SMEs, holding general insurance policies that protect their business and property risks may apply to their insurer for installment payment plans. General insurance companies stand ready to work with their corporate customers so they can pay their premiums in smaller amounts and enjoy coverage for the paid-up period, instead of paying a lump sum premium for the entire policy period at the start.

Mr Ravi Menon, MAS Managing Director said, “It is heartening to see our banks, insurers, and finance companies coming together to support their customers through this difficult time. Our financial institutions are able to do this because of their strong starting position. They have deep capital buffers, ample liquidity, and low leverage. They are well-placed to not only ride out the economic storm caused by COVID-19, but also provide meaningful relief to individuals and SMEs affected by the crisis.”

“The package of measures they have put together speaks of a financial industry in Singapore that is robust, responsible, and purposeful. These measures will complement the government’s broader fiscal initiatives and help the Singapore economy recover more quickly and emerge stronger when the pandemic passes – as it surely must,” he concluded.