Banks and finance companies in Singapore will have access to more funds if they run into liquidity problems due to the Covid-19 pandemic.

The Monetary Authority of Singapore (MAS) is rolling out a Singapore-dollar term facility to pre-empt and contain liquidity strains before they become serious challenges.

"While banks and finance companies in Singapore maintain healthy liquidity buffers, MAS is introducing this facility pre-emptively to provide greater certainty of access to central bank liquidity," an MAS statement said yesterday.

The measure, which will be launched by the end of this month, comes on top of two other liquidity facilities that the central bank has rolled out since the start of the Covid-19 crisis. They are the MAS USD facility and the MAS SGD facility for Enterprise Singapore (ESG) loans.

Ms Jacqueline Loh, MAS' deputy managing director for markets and development, said the measures would strengthen the banking sector in Singapore.

"(They) enable our banks to continue to support the needs of businesses and individuals here, and in the region, through the crisis," she said.

Banks and finance companies are bracing themselves for more defaults as firms struggle to stay afloat amid the pandemic and the prospect of relief measures being wound down by the end of this year.

Local banks DBS, OCBC and United Overseas Bank have all shored up their balance sheets, even as they reported a decline in net profits in the second quarter of this year.

MAS said its latest facility would offer Singdollar funds in one-month and three-month tenors, and a range of collateral - comprising cash and marketable securities in Singdollar and major currencies - will be accepted.

The collateral accepted for its USD facility would also be expanded to include the above.

Banks incorporated in Singapore and categorised as "domestic systematically important", or D-SIBs, would also be allowed to pledge "eligible residential property loans as collateral" at the MAS SGD Term Facility.

"The acceptance of residential property loans as collateral is only available to D-SIBs and is in line with the practices of major central banks," MAS said.

"The expansion of acceptable collateral will help these banks conserve their more liquid instruments and strengthen the effectiveness of the MAS SGD Term Facility in providing liquidity support."

CIMB Bank Private Banking economist Song Seng Wun described the MAS move as a safeguard and a contingency plan against deeper economic cuts if the current "recessionary tensions do not ease".

More retrenchments and business closures would affect repayment schedules for both retail and corporate customers, Mr Song said.

"At this point, we really don't know how the pandemic will pan out," he added.

Banks, including DBS and Standard Chartered, welcomed the central bank's move.

Dr Andy So, managing director and head of treasury and liquidity management at DBS, said: "While Singapore banks have strong liquidity positions, these measures will provide greater certainty of access to central bank liquidity in times of liquidity stress."

In July, MAS said it would be extending a US$60 billion (S$82 billion) swap facility with the United States Federal Reserve to facilitate lending to businesses in Singapore, after setting up the facility in March.

It established the MAS USD facility on March 26 to lend US dollars to banks in Singapore. Both the swap line and MAS USD facility have been extended to end-March next year.

In April, MAS said it would offer near-zero interest rate loans to eligible banks and finance companies - at 0.1 per cent per annum for a two-year tenor - as part of an effort to support lending to small and medium-sized enterprises under ESG schemes.