Published November 22, 2008

Government pushes to clear credit clog

Easier loans and funding for local companies, with government backing

By CHEN HUIFEN
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AS EXCESSIVE caution on the part of bankers threatens to choke off credit lifelines to local enterprises, the government has stepped in to get loans and liquidity flowing again. It is making available $2.3 billion of funding support to all local outfits, regardless of size, to help them weather the credit crunch.

Besides small and medium enterprises (SMEs), bigger companies with more than 200 employees or fixed assets above $15 million can tap into new credit schemes from next month. Start-ups, too, will have more access to funding.

'If you go by Monetary Authority of Singapore (MAS) data for September, lending activity continues at a reasonably healthy pace,' said Senior Minister of State S Iswaran. 'But there is evidence that local banks have become more cautious in their lending. So although we may not have a credit freeze in Singapore, we are certainly feeling the impact of a credit squeeze.'

A new Bridging Loan Programme has been introduced for companies with more than 10 workers to access credit of up to $500,000.

The default risk will be shared equally by the government and the financial institutions.

'In the overall scheme of things, the package sends a very important signal in terms of the level of confidence the government places in the business community in Singapore.'
- Predeep Menon,
executive director of the Singapore Indian Chamber of Commerce and Industry

The rest of the support package will enhance existing financing programmes administered by Spring Singapore and IE (International Enterprise) Singapore, including the Local Enterprise Finance Scheme (LEFS), the Loan Insurance Scheme and the Internationalisation Finance Scheme. In those programmes, the government will take a greater share of the risk, and loan quantums will be raised.

In LEFS, for instance, the default risk carried by the government will be raised to 80 per cent of the loan sum, up from 50 per cent, if the borrower is an SME. The risk ratio will be 50-50 if the borrower is a larger company.

Mr Iswaran said the measures will help ensure local firms have sufficient resources to continue to operate, invest, trade and internationalise. Some 124,000 companies in Singapore stand to benefit from the new funding. About 107,000 of these are in services, 7,000 in manufacturing and the rest in construction.

Companies and business associations that BT spoke to hope the new funds will instill confidence in the lending system.

Predeep Menon, executive director of the Singapore Indian Chamber of Commerce and Industry (SICCI), said banks are now curtailing corporate credit lines with little regard for a client's track record or credibility.

'For smaller enterprises, the new funds will be lifelines,' he said. 'And in the overall scheme of things, the package sends a very important signal in terms of the level of confidence the government places in the business community in Singapore.'

Association of Small and Medium Enterprises (ASME) president Lawrence Leow said the package is timely, 'as economic and business conditions have deteriorated very quickly in a short time'.

'While we believe the higher loan quantums and increased government risk-sharing of defaults should stimulate financing, we hope the banks will start easing on credit and will be more willing to consider loan applications and shorten loan processing time,' he said.

Several business players called for measures to cut costs, or tailored programmes for sectors that have been beaten down.

Orient Express Lines managing director Mahesh Sivaswamy said new loan schemes will do little for his company if demand does not pick up.

Phillip Overmyer, chief executive of the Singapore International Chamber of Commerce (SICC), said he is disappointed there has been no cut in the GST rate, which he believes would help stimulate consumption.

'But this is just the first step,' he said. 'The government will probably have more things to announce in January. Having moved the Budget forward is also an encouraging sign.'

Leonard Tan, managing director of search engine solutions provider PurpleClick, hopes for a corporate tax cut.

'If the government can reduce the corporate tax for one or two years or, alternatively, allow us to pay the taxes cumulatively in later years, it could help tide us through,' he said.

The $2.3 billion funding support package is backed by a loan line of $3.9 billion. Mr Iswaran said more resources would be made available if the take-up rate exceeds expectations.

With additional reporting by Theodora Kee