Local lenders commit to lower rates for SME loans

The Monetary Authority of Singapore said it would offer loans to eligible banks at an interest rate of 0.1 per cent per annum for a two-year tenor. PHOTO: ST FILE

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 yesterday that eligible banks could borrow at just 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 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 service 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 to between 2 per cent and 3 per cent, down from 6 per cent or more at the start 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.

At United Overseas Bank (UOB), group business banking head Lawrence Loh said the value of loans provided to businesses with a turnover of less than $20 million increased by 31/2 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 were disbursed last month compared with a year ago.

Ms Joyce Tee, DBS' group head of SME banking, expects the momentum to continue at least until 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 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. He added: "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. "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 (Enterprise Singapore) is also unprecedented."

Mr Neo Yong Aik, managing director of event management firm Neo.TM, is looking to borrow about $1 million to grow his company, which has received close to zero income since February. Turnover in February last year was almost $500,000.

Mr Neo, who has 25 staff, hopes to invest in new business lines such as virtual events during this period when most Singaporeans are working from home. He expects business to pick up only next year.

"We are dead if we don't borrow and grow our business," he said.

Aw Cheng Wei

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A version of this article appeared in the print edition of The Straits Times on April 21, 2020, with the headline Local lenders commit to lower rates for SME loans. Subscribe