Targeted credit relief measures unveiled for SMEs, individuals
Loan deferments peaked in Q2, but there's potential for new wave of distressed firms.
Singapore banks believe that loan requests and deferments by individuals and small and medium-sized enterprises (SMEs) already peaked earlier in the year, and do not expect a significant number to seek further relief.
The industry is nonetheless gearing up for a potential wave of financially distressed businesses that need more customised help to restructure.
On Monday, the Monetary Authority of Singapore (MAS) and the financial industry unveiled a slate of measures to soften the landing for those still struggling with the fallout from the pandemic. Chief among them is the extension of the debt moratorium expiry from the end of the year to 2021.
These measures are more targeted in their approach; they provide additional support for sectors hit the hardest, and come with added requirements, such as the need to show proof of Covid-19 impact.
Under the Extended Support Scheme - Standardised (ESS-S), SMEs in Tier 1 and 2 sectors may opt to defer, till 30 June 2021, 80 per cent of the principal payments on their secured loans from banks or finance companies, and loans under the Enhanced Working Capital Loan Scheme and Temporary Bridging Loan Programme of Enterprise Singapore (ESG). Applications open Nov 2, 2020.
Tier 1 and 2 sectors comprise aviation/aerospace, tourism, hospitality, conventions and exhibitions, built environment, licensed food shops and food stalls, qualifying retail outlets, arts and entertainment, land transport, and marine and offshore.
SMEs in other sectors may opt for deferment, but only up to March 31, 2021.
Since April, SMEs have been able to defer principal payments on their secured term loans up to Dec 31, 2020. Eligible enterprises under the ESG schemes can also apply to defer principal payments, subject to assessment by the financial institutions.
As at Aug 31, 2020, there were 5,400 applications by SMEs to defer secured loans; of these, 99 per cent, valued at more than S$11.5 billion, were successful.
The ESS-S relief will be available to SMEs which are no more than 30 days past due on their loan payments. SMEs whose loans have been granted principal moratorium should also not have overdue interest payments on them.
DBS, OCBC and UOB said requests for new loans and moratoriums peaked in the second quarter, but have slowed since then; HSBC also said that loan applications have peaked, with June and July being the busiest months.
Linus Goh, who heads Global Commercial Banking at OCBC Bank, said: "Overall, we do not foresee a significant proportion of our customers requesting for an extension of their moratoriums."
A DBS spokesperson said that SMEs are "seeing the green shoots of a long economic recovery": "We have seen moratorium applications slow down since July, and most borrowers with viable business models have been prompt in repaying their loans. The same applies for mortgage moratorium applications; few applications were seen post July."
Over at UOB, moratorium applications approved in April and May accounted for more than 80 per cent of the total applications approved so far.
Among small-business applicants (annual turnover of S$10 million and below) with moratoriums expiring by Dec 31, a third have said they will return to pre-moratorium repayment terms; the rest have asked for an extension of their debt moratorium.
UOB expects companies from hard-hit sectors such as building and construction and tourism-related sectors to seek additional liquidity support to tide through this period.
The bank has also set up dedicated restructuring teams ahead of the relief measures being withdrawn. These teams work together with relationship managers to conduct a comprehensive, commercial-based loan restructuring, so that companies with a viable business model emerge stronger for the long term, said the bank's head of Group Commercial Banking, Eric Tham.
The companies include those in consumer discretionary, transport, industrials and real estate, he added.
Such a move by the bank is in sync with the customised restructuring programmes aimed at SMEs, which were unveiled on Monday.
Another helpline is being set up for SME borrowers with more than one lender: This is the Extended Support Scheme - Customised (or ESS-C), designed to facilitate the restructuring of a borrower's loans across multiple financial institutions.
The scheme will be available from Nov 2 for any multi-banked SME for whom Credit Counselling Singapore's scheme for sole proprietors and partnerships (SPP Scheme) or the Ministry of Law's Simplified Insolvency Programme for qualified micro and small companies (MSCs) is not suitable.
Ng Li Lian, country head of business banking at HSBC Singapore, said larger SMEs are often multi-banked, adding that "there is no cookie-cutter solution". She said the banks are making a "concerted effort" to come together to support SMEs with good, viable business models, but which need more time to ride out the downturn.
Aside from SMEs, individuals will also get some leeway with their loan commitments.
From Nov 9 till June 30, 2021, those with residential, commercial and industrial property loans and who are unable to make loan repayments in full may apply to their bank or finance company to make reduced instalment payments pegged at 60 per cent of their monthly instalment, for up to nine months. For most individuals, the 60 per cent reduced monthly instalment will cover interest and partial principal payments.
This option is available to individuals who can furnish proof that they now earn at least 25 per cent less, and have property loan payments not more than 90 days past due.
An MAS spokesperson said that the number of mortgage deferments has tapered off since the peak between April and June 2020, when more individuals were hit by the circuit-breaker measures.
As at end-June 2020, there were nearly 34,000 approved mortgage relief applications. By the end of August, there were 36,000 such applications, amounting to S$29 billion. They account for about 15 per cent of outstanding mortgages.
Other individuals in line to receive some relief include those with renovation and student loans, those with difficulty repaying their unsecured revolving credit facilities and those on existing debt consolidation plans.
Ravi Menon, managing director of MAS, said of the extended support : "A good outcome is one where individuals and SMEs can use the support measures to help them tide through the current economic difficulties and emerge with a sustainable debt burden as the economy recovers."
Extended credit relief support for SMEs
- SMEs in Tier 1 and 2 sectors can apply to defer 80% of principal from Jan 1, 2021 to June 30, 2021.
- SMEs in other sectors can apply to defer 80% of principal from Jan 1, 2021 to March 31, 2021.
- Extended Support Scheme - Customised (ESS-C) is being developed to facilitate the restructuring of a borrower's loans across multiple financial institutions.
Extended credit relief support for individuals
- Individuals may apply to make reduced instalments on their mortgages pegged at 60% of monthly instalment, for a period of up to nine months.
- Individuals with renovation and student loans may apply to their respective bank to extend their loan tenures by up to three years.
- Application period for individuals to convert outstanding balances in their unsecured revolving credit facilities to term loans extended to June 30, 2021.
- Application period for those on debt consolidation plans to extend their tenure for up to five years extended to June 30, 2021.
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