Coronavirus: MAS package cuts risk of delinquencies, bankruptcies

Facility to defer loan repayment will assuage worry over viability of Singapore's household debt

Singapore's central bank and its financial industry are making a combined effort to head off a wave of delinquencies and bankruptcies amid the economic downturn induced by the coronavirus pandemic.

The relief package for borrowers rolled out by the Monetary Authority of Singapore (MAS) and the financial sector on Tuesday will probably be the biggest restructuring of household and corporate debt in Singapore's history.

Debt rescheduling and lower interest payments will naturally hit earnings for lenders and insurers. But given the economic deterioration at home and abroad, most of the pain for the financial sector is already priced in.

Share prices of Singapore banks, for example, are down by as much as 29 per cent so far this year.

The sell-off is partly driven by the risk of a spike in bad debts - also called non-performing loans (NPLs).

Under the announced relief package, individuals can apply to their banks and insurers to defer repayment of mortgages and unsecured consumer loans, as well as premium payments for life, health and car insurance plans up to the end of the year.

The package also offers cash flow and debt repayment support to small and medium-sized enterprises (SMEs) by providing continued access to bank credit and insurance cover.

SMEs are the top employers of Singapore's resident labour force. Keeping them afloat is essential in reducing the risk of retrenchments.

Still, businesses are buckling under the weight of necessary lockdowns and other restrictions, threatening a surge in job losses.

The risk of high unemployment has raised the spectre of cascading defaults within the record US$47 trillion (S$67 trillion) global pile of household debt.

In Singapore, outstanding household loans stand at about 52 per cent of the nation's $508 billion nominal gross domestic product (GDP), according to DBS Bank estimates.

Mortgage loans make up the biggest chunk of consumer debt.

The property-related debt becomes even bigger in size and scope if the debt owed by the construction sector is included - a staggering 68 per cent of GDP.

As such, the facility to defer repayment of residential property loans will go a long way in assuaging concerns regarding the viability of the country's household debt and the stability of the financial system.

Borrowers will not need to prove the coronavirus pandemic damaged their financial health in order to obtain deferment of property loans. Qualified borrowers, however, will need to pay the interest accrued on the deferred principal amount.

"The financial industry is sharing the burden of debt relief for individuals and SMEs and so it's mitigating the risk of a potential surge in NPLs, which would be far worse for the health of the financial system," said DBS senior economist Irvin Seah.

"Forbearance is called for in a situation where companies and individuals suffer for no fault of their own. There is nothing anyone could have done to avoid the situation they are in today," he added.


Given the uncertainty over the trajectory of the pandemic and the depth and duration of the resultant economic recession, a healthy Singapore financial sector will be crucial in helping citizens keep their jobs and pay down their debts.

MAS will ensure that inter-bank funding markets remain liquid and well functioning to help shore up banks' ability to shoulder the bulk of the debt relief burden.

Banks and finance companies can also apply for funding through a new Singapore dollar facility for low-interest loans granted under Enterprise Singapore's SME Working Capital Loan scheme and Temporary Bridging Loan Programme.

  • Coronavirus: Stay informed and safe

  • The world now faces an unprecedented crisis because of the Covid-19 outbreak.

    To help our readers stay informed on the latest health, economic and social developments related to the outbreak, we are making our news reports and analyses by our correspondents freely available to all.

    You can also sign up for our free newsletter on the coronavirus outbreak.

    We thank all of our readers for your support.

    Should you wish to sign up for a subscription, that would be a great help to enable us in the newsroom to continue serving you in these difficult times.

    Warren Fernandez
    The Straits Times

The facility will cut the cost of lending for banks that are already suffering potential compression of their net interest margins due to the near-zero interest rate environment.

MAS' help to banks comes in addition to support by the Government, which extended corporate default risk coverage to all sectors and up to 80 per cent of the loan value in Budget 2020 and the supplementary budget.

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said: "From the perspective of financial stability, this is probably a good trade-off from what could be a lose-lose outcome if distressed firms and individuals fail and NPLs surge anyway."

While the package alone will not turn around the overall weak demand caused by the pandemic, it may provide some short-term relief, she added.

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.

A version of this article appeared in the print edition of The Straits Times on April 02, 2020, with the headline Coronavirus: MAS package cuts risk of delinquencies, bankruptcies. Subscribe