Trend fuels 10 per cent rise in business for ValueMax
By CHEN HUIFEN
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BANKS are scrutinising borrowers more closely, be they businesses or individuals.
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Gold Kili sales manager Audrey Ho said she was shocked when, in a recent loan application for the purchase of a factory, the company was asked to provide a corporate guarantee even though it was just one of the shareholders in the venture.
'Now the banks also want your Iras (tax statement), they want your pay slip . . . and on top of personal guarantees, which is usually the norm, they want a corporate guarantee by my company as well,' she said.
A business manager in a food company said its bank is now enforcing more checks 'and asking more questions regarding commercial loans like equipment financing. The approved amount was much less than what we used to get before the credit crunch . . . The banks are not willing to expose themselves to risk even when the application is a straightforward one'.
Just three weeks ago, Patrick Grove, executive chairman of iProperty.com Group spoke to his banks about pledging a property as collateral for a commercial loan. He was disappointed to find that all the banks he spoke to were only willing to lend about 60-70 per cent of the valuation of the the property, compared to 70-80 per cent of valuation before the global credit crunch set in.
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On top of that, the loan quantum changes every month as property valuations trend downwards.
'So, for instance, a bank might lend you $1 million today and if you think about it for a month and then say yes, you'll find the bank has revalued the property lower and will now only give you $750,000,' said Mr Grove.
An observer said falling property prices and expectations of a weakening market have made banks here tread more cautiously to give themselves more buffer room in the event of default. Also, the implementation of FRS40 accounting rules may have caused some upward re-valuation of commercial properties, explained the source. So bankers may be more cautious to take those valuation numbers at book values, when considering cases for new loans.
When contacted, HSBC, Standard Chartered, OCBC, DBS and UOB did not confirm if the lending ratios have fallen. They also denied imposing a cap on the loan quantum per property pledged.
'DBS does not have an absolute lending cap for property loans to SMEs,' said the bank's spokesman. 'When determining the financing quantum for a commercial property loan, a variety of factors, such as the value of the property as well as the company's viability and cashflow position, are considered.'
Said a UOB spokesman: 'In loan applications involving property collaterals, the valuation of a property is just one of many other factors considered, including the company's business viability, cashflow, and track record. Every loan application is considered on a case-by-case basis, with all factors of credit assessment criteria taken into account. The loan amount granted is not based on any single factor.'
Similarly, OCBC explained that the loan quantum approved is dependent on many factors. 'Our credit risk assessment framework looks at factors such as the SME's cash flow, repayment capability, track record and credit history, in addition to the traditional evaluation of the company's financial statements, business plan and value of collateral pledged,' said the bank's group corporate communications head Koh Ching Ching.
Relationship managers are said to advise corporate clients to pay their personal credit card bills on time, as their individual credit standings are being closely watched too.
Meanwhile, pawnbrokers have turned out to be major beneficiaries under the credit tightening situation. ValueMax, the biggest pawnbroker here, has noticed a 20 per cent jump in transactions involving white-collared workers in the past six months.
'Most white-collared men pawn branded watches,' said ValueMax Group manager Yeah Lee Ching. 'The women pawn diamond jewellery as well as branded ladies watches. Some of them also pawn gold.'
They tended to be people who need cash to enter the stock markets, or meet minimum payments on their credit card bills. A proportion could also have lost their jobs recently, according to Ms Yeah.
The trend has helped fuel a 10 per cent rise in business for ValueMax and attracted stiffer competition as well. Aspial Corp, for instance, has successfully secured a pawnbroking licence last month and is applying for another four.
However, the credit situation is not entirely dire. According to data from Spring Singapore, the number of loans approved went up 77 per cent in February to 729, from 411 in January. The February figure is almost three times the monthly average of 250 loans last year.
Total loan amount was $332.4 million, more than double the $142.2 million disbursed in January. About 90 per cent of the loans went to SMEs.
Still, Spring chief executive Png Cheong Boon warned that challenges remain ahead. 'Not all companies will get financing, even with the government easing the credit squeeze,' he said. 'At the end of the day, companies must have a viable business model that can help them stay on course.'
Additional reporting by Oh Boon Ping
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