Singapore's three listed finance firms are poised to reap benefits from regulatory changes that will boost their customer reach and capacity to lend.
Already, Hong Leong Finance, Sing Investments & Finance and Singapura Finance have enjoyed hefty run-ups in their share prices.
But the trio are not counting their chickens just yet, amid issues such as competition with banks and stressed asset quality.
The Monetary Authority of Singapore (MAS) announced two weeks ago rules governing the sector - an exclusive group of just the three firms - will be gradually relaxed.
These firms will eventually be able to offer uncollateralised loans of up to 25 per cent of their capital funds, with a cap of 0.5 per cent of capital funds for uncollateralised loans to every single borrower.
Current rules limit total uncollateralised loans to 10 per cent of capital funds, while loans to a single borrower are capped at $5,000.
The second big change is to allow them to offer current accounts and cheque services - an "exciting" move that Sing Investments & Finance chief executive Lee Sze Leong said would open up new revenue streams and markets.
"With the easing of limits on unsecured loans, we will be able to exercise more flexibility in our customisation of financing solutions for SMEs," he told The Straits Times.
"We will also be able to gather current account deposits, which should lower our funding costs and improve our net interest margins."
Finance firms offer savings and fixed deposit services, and loans.
Small and medium-sized enterprises (SMEs) are major customers. The trio commanded almost $7 billion in outstanding SME loans as of the second quarter of last year.
Hong Leong Finance - the biggest finance firm in town - has 10 SME Centres and 28 branches.
The financing arm of the Kwek family's Hong Leong Group fully services SMEs. It is the first and only finance firm recognised as a Catalist sponsor, which guides companies through the listing process.
Last Friday, as Hong Leong Finance unveiled its full-year results, chairman Kwek Leng Beng stressed a focus on SMEs in growth sectors.
"More accessible funding options will be made available to them to help them build up their mettle to restructure, transform and grow further," he said.
Other companies have their own niches. Mr Lee said strong relationships with boutique property developers and holding companies, such as property investment firms and car dealers, are valuable for Sing Investments & Finance loans growth.
Smaller SMEs and entrepreneurs could also prefer approaching finance firms over banks, which they may see as "hierarchical", he added.
About half of Singapura Finance's loans are to SMEs. The new rules mean it can deepen its presence by entering the uncollateralised loans business, chief executive Jamie Teo said. "There are SMEs with money tied up in projects and slow payments. They don't have enough money to start new projects and there's a need to borrow a small amount to kick-start new projects
"We are still exploring strategies... but certainly we want to come in to support companies in need of capital and make sure SMEs remain our key growth driver."
But Mr Teo is realistic. "If you do the calculation, 25 per cent of our capital funds as allowed by the new MAS rules will be a maximum of about $60 million - less than 10 per cent of our total loans at about $800 to $900 million. The business impact is not exactly strong."
Sing Investments & Finance also offers no uncollateralised loans now. The same calculation suggests it will have roughly $80 million more on its loan book if it fully taps the 25 per cent cap - or about 4 per cent of its total loans last year.
Mr Lee said: "We are waiting for the full details from the central bank. Only thereafter will we be in a position to chart out more concrete business plans."
Finance firms face several industry challenges. Competition and funding costs are just two, Moody's vice-president and senior credit officer Eugene Tarzimanov said.
He added: "Finance companies have been losing market share to the commercial banks, which have a competitive edge through cheaper funding and more financing options. While finance companies will be able to underwrite bigger tickets for unsecured SME loans, such loans will be inevitably more expensive for SMEs because of higher credit risks for the lenders."
DBS Vickers analyst Lim Sue Lin flagged non-performing loans (NPLs) as a worry. "As finance companies typically have riskier assets compared to the likes of banks - with the exception of Hong Leong Finance, which operates pretty closely to a bank - NPLs are typically higher for these companies."
