Finance firms' loans hit records on relaxed SME lending rules


Singapore's finance companies are on a roll, with loans boosted by liberalised rules on lending to small and medium-sized enterprises (SMEs).

Hong Leong Finance (HLF) and Sing Investments & Finance (SIF) have seen their loan books hit all-time highs, as they extend more credit to SMEs, their biggest client segment. They have also been selling more property loans.

In its third-quarter results, HLF, Singapore's biggest finance company, said loans rose almost 5 per cent year to date to $10.3 billion, the highest in its 57 years of history.

At SIF, loans gained 8.7 per cent to hit $2.07 billion in the first nine months of this year.

Singapura Finance, the third and smallest finance company in Singapore, saw its loans fall; in the year to date, it was down 7.1 per cent to $694 million.

On HLF's loan growth so far this year, Mr Ang Tang Chor, the firm's president, said it was from several sources. Loans with strong demand include an SME programme, working capital loan, equipment loan, property loan and hire purchase, he added.


Demand for cash-flow financing is very strong as cash flow is a lifeline for businesses. They are also borrowing to meet their working capital needs.

MR ANG TANG CHOR, Hong Leong Finance president, on cash-flow financing solutions for businesses.

"The relaxation of restrictions by the MAS (Monetary Authority of Singapore), such as raising the limit of uncollateralised business loans, has provided us with the capability to assist more SMEs with cash-flow financing," said Mr Ang.


"There is more flexibility in our customisation of funding solutions to meet the specific needs of our SME clients. More accessible funding options are made available to SMEs that generally have few assets to pledge," said Mr Ang.

The MAS relaxed rules for finance companies to offer unsecured loans to SMEs last year. Effectively, it meant finance companies could extend collateral-free loans to small businesses.

SMEs are faced with a longer asset conversion cycle, for debtors are taking longer to pay them back, said Mr Ang.

"Demand for cash-flow financing is very strong as cash flow is a lifeline for businesses. They are also borrowing to meet their working capital needs," he added.

HLF offers a wide variety of cash-flow financing solutions to fit different business needs - from revolving credit lines to accounts receivable financing, factoring and supplier invoice financing and customised innovative financing solutions to meet project delivery and trade-specific requirements.

Mr Ang said many SMEs are restructuring and investing in capabilities to boost their businesses and become more effective and efficient.

"We also noted that there is a growing emphasis on digitisation, especially in the areas of business operations and finance," he added.

SIF deputy managing director Lee Sze Siong said: "With the liberalised rules, SIF is able to offer a more holistic product bundling to our SME customers."

SIF head of credit marketing and senior vice-president Wang Choon Siong said the first half of this year was pretty good for the firm, the property market was also buzzing, and the company took the opportunity to do more loans.

Previously, a finance company was mainly restricted to offering hire purchase loans to SMEs to help them buy machinery, Mr Wang said.

Now, finance companies can offer working capital to SMEs to finance the purchase of raw materials, and see them through to the production and the finished goods stage, he added.

"We can finance SMEs for the entire business cycle, the relationship is thicker," Mr Wang said.

Finance companies can now offer current accounts to SMEs and this lets them also monitor customers' cash flow, he added. "We can see their cash flow, via the current account, their collections and any hiccups in between."

He said: "With the liberalised rules, we can provide more than 90 per cent of what SMEs require."

Still, finance companies face keen competition from banks for the SME business, he noted. In the second quarter of 2016, the three finance companies accounted for just under $7 billion, or 8.5 per cent, of total outstanding SME loans of $82.6 billion.

There are more than 210,000 SMEs in Singapore. The SME market will remain a key focus for HLF's business growth, said Mr Ang.

"The economic climate remains challenging, as SMEs become more competitive and productive. However, we continue to see opportunities in serving them well and will help them stay ahead of the competition with new, innovative and relevant financing solutions," he added.


HLF's mortgage equity loan launched in March last year is also doing well, Mr Ang said.

"We are also very encouraged with the success of our award-winning mortgage equity loan programme ME@50 rolled out in March 2017, in support of the regulatory relaxation of borrowing against the value of private properties to enable borrowers to monetise their assets in their later years," he added.

HLF is the first financial institution to introduce the loan programme where the total debt servicing ratio framework for mortgage equity withdrawal loans with loan-to-value ratios of 50 per cent and below is relaxed, Mr Ang said.

ME@50 allows individuals in their retirement years to cash out with a term loan of up to 50 per cent of private residential property value without having to sell the property and also enjoy the unique flexibility to make early loan repayment without penalty to save interest cost, he added.

"ME@50 has empowered 50-and 60-something baby boomers to make different life choices that they did not have before.

"ME@50 serves the diverse needs of our customers well in their retirement years, be it for their new business ventures, settlement of family issues, business transformation, home renovation or helping their children to achieve their dreams by supporting their education," said Mr Ang.

A version of this article appeared in the print edition of The Straits Times on December 24, 2018, with the headline 'Finance firms' loans hit records on relaxed SME lending rules'. Print Edition | Subscribe