SINGAPORE: The Monetary Authority of Singapore (MAS) is in discussions with banks, insurers and other financial companies on how to ease individuals and businesses who have tapped on existing COVID-19 relief measures into gradually resuming repayments.
This is being done so as to “avoid cliff effects of a sudden withdrawal of these reliefs”, said MAS managing director Ravi Menon during an online press conference following the release of the central bank’s annual report on Thursday (Jul 16).
Mr Menon added that the central bank aims to announce more details by October so that borrowers “have time to adjust”.
The MAS rolled out a slew of measures earlier this year to help individuals facing financial pressure amid the coronavirus outbreak.
These include allowing individuals to apply to defer their repayments for various loans, such as residential property, student, renovation and motor vehicles payments until the end of the year.
Small- and medium-size enterprises (SMEs) can also apply to defer principal payments on their secured term loans up to Dec 31, alongside other supporting measures with continued access to bank credit and insurance cover.
These relief measures have helped ease the financial stress of individuals and businesses, said Mr Menon, but deferred repayments only provide “temporary relief”.
“Bank loans and insurance policy premiums will eventually have to be paid,” he said.
“It can’t be that (on the) midnight of Dec 31, all the reliefs stop and then people have to start making repayments on Jan 1. That will be too sudden and many people may not be prepared.”
On the other hand, an indefinite extension of these relief measures will not be ideal as they come with “longer-term costs”.
“Deferment incurs interest cost, which means larger outstanding balances at the end of the deferment period … the longer you continue them, the more at risk some of these borrowers will be in terms of repayments,” the MAS chief said.
This could in turn affect the ability of banks to lend to the rest of the economy if they have to take large losses, he added.
READ: Singapore’s economic situation remains dire, with recovery likely to be ‘slow and uneven’: MAS
Mr Menon stressed that a decision on how to gradually resume repayments is a “complex matter” that may take several months, as the situation of those who have applied for deferments will have to be carefully studied.
“When we implemented these measures, we didn’t have to do any study. We just did it because we knew it was going to be necessary for a significant number of people … but now when you want to withdraw, you need to really understand the individual situation,” he said.
To date, banks have approved the deferment of principal or interest payments, or both, for about 34,000 mortgage loans until Dec 31, 2020.
They have also deferred both principal and interest payments on more than 2,100 renovation and education loans.
More than 6,200 applications to convert outstanding credit card and unsecured debt to term loans at lower interest rates have also been approved.
In addition, more than 3,200 motor vehicle loans and hire-purchase agreements have benefited from a variety of repayment reliefs.
Insurers have approved a six-month premium deferral for more than 25,000 life and health insurance policies, while maintaining coverage.
Nearly 600 individual general insurance policies, such as for vehicles, are under flexible instalment payment plans to help ease policyholders’ cash flow burden.
When it comes to SMEs, banks have approved repayment deferments for more than 5,300 SMEs’ secured loans, while allowing some of SMEs to defer repayments on their unsecured loans as well.
More than 240 SME applications for flexible instalment plans for general insurance have also been approved.
Mr Menon said these take-up rates are “not unduly large” when compared with the total size of the local mortgage market and SME loan portfolio for instance, suggesting that individuals and SMEs have “exercised prudence”.
“That suggests that people know they can have these deferments but not everyone has rushed in, which is a good sign.
“One of our initial fears was what if the majority of people opt for these deferments, then they will just be building up debt for no good reason.”
He added that the banks have been “quite accommodative”, approving about 90 per cent of applications for most relief measures.
“Now we are monitoring their financial conditions and getting an update to see if indeed this is a problem,” he said.