Scale-back of Special Risk-Sharing Initiative

Scale-back of Special Risk-Sharing Initiative:

(Impact on companies): 1.

Mdm Ho Geok Choo asked the Minister for Trade and Industry (a) how successful has the Special Risk-Sharing Initiative (SRI) been and why is there a need for a weaning-off period if the economy is improving; and (b) by scaling back the financing assistance schemes and the eventual discontinuation of the schemes in January 2011, how it will

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affect the SMEs and whether it will hamper efforts to grow our own local MNCs.

The Minister for Trade and Industry (Mr Lim Hng Kiang): Mr Speaker, Sir, during the global financial crisis, financial institutions became more risk-adverse. To ensure that local enterprises have sufficient financial resources to continue to operate, invest, trade and internationalise, existing business and trade financing schemes were enhanced significantly in December 2008 and the Special Risk-Sharing Initiative (SRI) was launched during Budget 2009. These measures have been successful in alleviating the credit tightness. Since December 2008, more than 14,000 loans worth about $8 billion have been catalysed under both the SRI and enhanced business and trade financing schemes. More than 13,000 companies, of which more than 90% were SMEs, benefited from the schemes. The total amount of loans given was more than five-and-a-half times the loan amount given out under Government-assisted schemes over the one year period prior to the changes.

With the improvement in economic conditions, credit conditions have eased. The major economies worldwide have stabilised and appear on the way to recovery. Nonetheless, we are cognisant that smaller companies, especially those in badly affected sectors, may still face difficulty accessing commercial credit. At the same time, there remain challenges in the credit insurance markets as well as in cross-border financing. We therefore decided to extend the SRI and enhancements to the business and trade financing schemes for another year until end January 2011, with some scaling back on lending terms. The one year extension will help companies adjust as the economy makes the transition from recession to growth.

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In the steady state, Government loan schemes are not intended to replace the commercial lending markets. They are meant to facilitate viable companies, but with higher risk profiles, access credit. Companies with lower risk profiles should be able to access commercial lending to meet their needs, especially amidst the recovering commercial credit market. The scale back in the SRI and the various business and trade financing schemes have been primarily in the Government’s risk share, rather than to the eligibility criteria or type of loan facility supported. Based on the current profile of loans, the scaled backed business and trade financing schemes will still be sufficient to meet the needs of the vast majority of SMEs, for instance, the revised BLP loan quantum cap of $2 million is still sufficient for more than 95% of past SME loans. After the discontinuation of the SRI in 2011, SMEs will still be able to tap on the mainstay Government financing schemes, which were in place before the recession.

Mdm Ho Geok Choo (West Coast): Thank you, Minister, for the comprehensive response. Two additional questions. One is, among those companies that were eligible for this scheme, have there been cases of default, what were the reasons and how much was written off? Second question is, there has been a spike in insurance premiums from 0.15% to 0.45%. This is likely to add on to the overhead costs for SMEs. Would the Minister re-consider lowering it?

Mr Lim Hng Kiang: Mr Speaker, Sir, we are still monitoring the default rates. As Members can well imagine, the loans that were taken up in end 2008 and 2009, ought not to be going bad so soon. So I think it is still too early to tell. We are still tracking the default rates. Suffice to say the rates so far still reflect pre-crisis levels but, nonetheless, we should expect the rates to go up as the loans progress. On the trade insurance premium rates – we

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recognise that the trade financing markets are still rather weak and that is the reason why we kept most of the terms intact. We have not changed the terms. The only thing that we have adjusted is the premium rate and this is to raise the premium rate from 15 basis points to 45 basis points. But Members must see this in context of the pre-crisis rate which was 75 basis points. So we are still very supportive but we must make that transition. We cannot keep the rate at the previous 15 basis points.