COVID-19: Banks to lend money to SMEs at lower interest rate under MAS, Enterprise Singapore initiative

SINGAPORE: Small- and medium-sized enterprises that need help to manage their immediate cash flow needs during the COVID-19 pandemic can take out government-assisted bank loans at a lower interest rate.

The Monetary Authority of Singapore (MAS) and Enterprise Singapore on Monday (Apr 20) launched a new facility to lend Singapore dollars at 0.1 per cent interest per annum to eligible financial institutions.

Banks are expected to pass on the cost savings, to make more loans to SMEs at a lower cost. 

In pricing SME loans, financial institutions typically take into account their cost of funds, their cost of underwriting, as well as a credit spread to reflect the risk profile of the borrower.

"By providing financial institutions funding at the low interest rate of 0.1 per cent per annum for a two-year tenor, the facility reduces the financial institutions’ cost of funds for loans made under the ESG (Enterprise Singapore) Loan Schemes," said MAS and Enterprise Singapore. 

"This will help SMEs manage their cash flow better amidst the current COVID-19 pandemic."

The move by MAS comes on top of enhancements to ESG loan schemes that were announced on Apr 6 as part of the Solidarity Budget - raising the Government's risk-share of loans to 90 per cent.

READ: Solidarity Budget - Bill to allow firms, individuals to defer contractual obligations such as rent 'for a period'

The new facility also reinforces MAS' efforts to ensure ample funding to banks in Singapore, by maintaining a high level of Sing dollar liquidity in the banking system, said the central bank.

“The MAS facility works in tandem with the ESG Loan Schemes to help lower borrowing costs for SMEs," said MAS managing director Ravi Menon.

"Together with the various relief measures that banks and finance companies are providing SMEs as part of the package announced by MAS on Mar 31, 2020, this latest initiative will help provide strong support to our SMEs, which are a vital part of our economy.”

READ: Immediate measures needed to slow COVID-19 even if they take short-term toll on economy - DPM Heng

BANKS TO PASS ON COST SAVINGS TO BUSINESSES

Local lenders said on Monday that they are committed to passing on the cost savings from the MAS facility to their customers.

"We have also gone a step further and waived all processing fees for the new loans since Apr 1, 2020," said DBS' group head of SME banking Joyce Tee.

"In March this year, we disbursed twice the number of loans and total loan quantum for government-assisted SME loans, such as the SME Working Capital Loan, as compared to a year ago."

READ: Solidarity Budget - Singapore spends another S$5.1b to save jobs, protect livelihoods amid impending circuit breaker rules

OCBC Bank said it expects the quantum of government-assisted SME loans it lends out to reach the S$1 billion mark come Jun 30, "fully utilising" the support given by MAS under its low-cost facility.

The bank, which has also waived loan processing fees, added that there has been a spike in the volume of applications for the relief measures by more than 10 times in the last two months. 

"We will ensure that no SME with a viable business model hit by COVID-19 is turned away," said OCBC.

UOB said on Tuesday that it has also seen a significant increase in the number of applications for the SME Working Capital Loan and Temporary Bridging Loan schemes, with approvals growing close to 60 times year-on-year in March. The bank has also waived processing fees for the loans.

"The facility, coupled with ESG’s higher risk-share for their loan schemes, will support us in providing more SMEs, including those that may have previously been ineligible, with essential financing support," said Mr Eric Tham, head of group commercial banking at UOB.

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