LOCAL banks are reporting a major surge in applications from smaller firms seeking loans under the Government's $2.3 billion initiative to ease the impact of the credit crunch on businesses here.

These firms had found it hard in recent months to obtain credit to help keep their businesses running - but the new loan schemes appear to be working, if application levels are any guide.

CASE REVIEW 'We heard people talking about how banks are kiasu and that we are reducing (credit) lines...so we started to review all cases where we reduce or close a client's credit line.' DBS' head of enterprise banking Edwin Khoo, on the bank's new review system

Banks here have received some flak for allegedly curbing lending to small- and medium-sized enterprises (SMEs).

DBS Bank said yesterday that applications under the government-backed schemes have soared by up to three times since the enhancements took effect on Dec1 last year. Rival OCBC also reported a major rise in applications, though both banks declined to disclose loan approval numbers. DBS has also become the first bank here since the financial crisis erupted to give details of its SME lending practices - announcing an internal review process.

DBS' head of enterprise banking, Mr Edwin Khoo, said that to ensure that clients' credit lines are not needlessly cut, DBS recently implemented a review system which will see recommendations by relationship managers to cut credit lines scrutinised by senior management.

'We heard people talking about how banks are kiasu and that we are reducing (credit) lines...so we started to review all cases where we reduce or close a client's credit line,' said Mr Khoo.

Previously, such decisions were left to the discretion of relationship managers but Mr Khoo said that, to date, 'only a handful' of DBS' SME clients have seen their credit lines cut or reduced.

In recent months, some SMEs have suggested that banks are more risk-adverse. In response, Mr Khoo said: 'We are watching but we are not in reverse gear during this economic situation. In fact, we have already said that for loyal customers who have been with us, we will help them.'

Both DBS and OCBC said many businesses are seeking loans under the enhanced Local Enterprise Finance Scheme (Lefs) and the Micro Loan from SMEs.

Mr Khoo said: 'We are seeing new applications, as well as requests for (loan) top-ups, increase by up to three times... and the approval rate has also gone up.'

Mr Tan Chor Sen, head of emerging business at OCBC's enterprise banking unit, said: 'Since the Government announced the enhanced financing schemes for SMEs last November, we have seen very good response and a surge in the number of applications received.'

Due to the surge in demand for the government-backed schemes, DBS said it has doubled the team that manages the schemes, by transferring staff from other units to help speed up loan applications.

The new measures enhance the Government's existing stable of business financing schemes. Enhancements include increasing loan amounts and extending the schemes to companies from different sectors. The aim is to help about 124,000 SMEs here. Last week, in a second round of measures, interest rates on the various Government-backed schemes were also cut by 1.25 percentage points.

Despite the popularity of the business financing schemes, banks say loan application evaluation will stay stringent.

'Regardless of economic or market conditions, every loan application is carefully considered, taking into account factors like the company's business viability, cashflow, and track record,' said United Overseas Bank's spokesman.

Key considerations in the evaluation process for the government schemes include the viability of the entrepreneur's business plan and the level of disclosure in terms of a firm's financial health.

'When presenting their business plans, SME customers should always be open and transparent and provide as much information on their financial activities as possible,' said Ms Kavita Bedi, general manager of SME banking at Standard Chartered Bank.

'If an SME is able to demonstrate that it has a sound business with market potential, a good track record and healthy cashflows, pending credit approval stipulated by regulations, it will have a higher chance of securing more financing.'

franchan@sph.com.sg