SINGAPORE - Local banks are committed to offering small and medium-sized enterprises (SMEs) government-assisted loans at an interest rate of between 2 per cent and 3 per cent to help them ride out the Covid-19 crisis.

This comes after the Monetary Authority of Singapore (MAS) said on Monday (April 20) that it would offer loans to eligible banks at an interest rate of 0.1 per cent per annum for a two-year tenor.

OCBC Bank expects to lend $1 billion in government-assisted loans to small businesses with a turnover of $20 million or less by June 30.

This is more than the amount it had disbursed to the same segment during the Global Financial Crisis about 10 years ago, it said in a statement.

It noted that companies in the manufacturing, construction, trading and distribution, and services sector are increasingly looking to the bank for support during the Covid-19 pandemic.

Its global commercial banking head Linus Goh said the bank can lower its interest rates on the government-assisted loans with the facility to between 2 per cent and 3 per cent, down from 6 per cent or more at the beginning of the year.

"We will pass all the cost savings to the SMEs and have also waived our processing fees for the new loans," he added.

Over at United Overseas Bank (UOB),the head of group business banking Lawrence Loh noted that the value of loans provided to businesses with turnover of less than $20 million increased by 3.5 times compared with January, when Singapore recorded its first Covid-19 patients.

About a third of these businesses have a turnover of less than $1 million, added Mr Loh.

UOB's head of group commercial banking Eric Tham said the bank approved about 60 times more loan applications for the SME Working Capital Loan and Temporary Bridging Loan schemes last month, compared with a year ago.

At DBS Bank, twice the number of loans and total loan quantum for government-assisted loans, such as the SME Working Capital Loan, was disbursed last month compared with a year ago.

The bank's group head of SME banking Joyce Tee expects the momentum to continue at least into the end of the year when the demand for goods and services is expected to pick up again, depending on how the Covid-19 situation in Singapore and the region develops.

DBS has approved more than 1,200 loans worth over $1 billion under the government-assisted loans programme.

Maybank Kim Eng senior economist Chua Hak Bin said the MAS facility will reduce the risk of funding drying up for SMEs.

Dr Chua said: "Banks tend to preserve capital as defaults and non-performing loans tend to increase in recessions".

Otherwise, banks might breach their minimum regulatory capital requirements, he added.

"The new MAS facility will help reduce the financing costs and incentivise banks to more willingly lend to SMEs, which account for about half of Singapore's gross domestic product and two-thirds of total employment," he said.

Mr Kurt Wee, president of the Association of Small and Medium Enterprises, said: "The rapid support given to small businesses arising from the coordination among banks like OCBC, MAS and ESG is also unprecedented."

He added: "The last two months have wiped out many small business owners' years of effort in savings and building their business".

Mr Neo Yong Aik, managing director of event management firm Neo.TM, is looking to borrow about $1 million if the rates are attractive enough to grow his company, which has received close to zero income since February because of Covid-19.

Turnover in February last year was almost $500,000.

The new MAS facility has assured him that borrowing costs have been lowered.

Mr Neo, who has 25 employees, hopes to invest in new business lines such as virtual events, among others, during this period when workers have to work from home.

He had been apprehensive about borrowing because he was worried about the debt.

"Live events are dead at least until end of year," he said.

He expects business to pick up again only next year. A major project he was working on - the Mobile World Congress to be held in Shanghai later this year - was cancelled last week.

"We are dead if we don't borrow and grow our business. We still have some hope of survival if we took out a loan," he added.

Nam Soon Timber founder Lee Tuck Keong took out a temporary bridging loan through OCBC earlier this year.

He decided to apply for the loan after an earlier set of measures was announced last month. He received the approval in less than a week.

"There is a lot of uncertainty ahead so the loan is a useful buffer for my business, and it can be used to support existing projects.

"We also intend to use the funds to make bulk purchases to allow us to enjoy economies of scale."