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SINGAPORE: The government has announced new initiatives to help businesses obtain funding amid the current credit crunch. To encourage banks to lend to firms, it will take on a greater share of the risks involved.
The move is aimed at helping more companies get access to credit, and not just the small- and medium-sized enterprises.
For local companies like Lucky Joint Construction, any government help is certainly welcome. During these tough economic times, banks have cut back significantly on lending.
Under a new Special Risk-Sharing Initiative, the recently launched Bridging Loan Programme will be enhanced.
The programme, which was announced in November last year, will now cater to loans of up to S$5 million, up from the current S$500,000.
The government will also raise its share of risk on these loans to 80 percent up from the current 50 percent.
Philip Overmyer, chief executive, Singapore International Chamber of Commerce, said: “The challenge that the government faces is to be sure that all that they're doing actually results in the money flowing from the bank to those companies. Banks are still very nervous. 80 per cent is a whole lot better than 50 per cent but is it enough to break the money out of the bank? The government has to put in place a system and a monitoring capability to be absolutely sure that it is and that the money flows out to the companies that have the ability to repay."
Mr Tharman said the Bridging Loan Programme will enable the banks to set their own interest rates which will give higher-risk borrowers access to credit.
This one-year programme will apply to all new loans from the start of next month.
For the first time, the government will also take on the bulk of the risk for trade financing.
They'll share 75 per cent of the risk on the existing Loan Insurance Scheme.
This will also apply to the new programme called Loan Insurance Scheme Plus.
This will help firms based here get working capital and provide private insurance to banks against default by borrowers.
In addition, a new Trade Credit Insurance Programme will be launched in March this year. It'll offer protection against non-payment and default risks of buyers.
The government will look at how to increase the insurance coverage capacity and subsidise part of the insurance premiums.
The measures are expected to generate S$11 billion of loans this year.
The government had previously only taken on the risk for lending of secured loans to small and medium enterprises. But now, it's taking on much more risk for loans to larger firms and even unsecured loans.
Mr Tharman said this is needed to help viable companies through this crisis and to protect jobs. - CNA/vm
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