IMPACT OF GOVERNMENT CREDIT SCHEMES

IMPACT OF GOVERNMENT CREDIT SCHEMES: 1.

Mr Seah Kian Peng:

Mr Seah Kian Peng asked the Minister for Trade and Industry given the various credit schemes introduced by the Government, whether he will provide an update on (i) the total amount of new loans approved by financial institutions to businesses in the last three months; and (ii) the total amount of loans which have been rolled over.

Mr Seah Kian Peng asked the Minister for Trade and Industry whether there are cases where banks are asking businesses to switch their loans to the Special Risk-Sharing Initiative scheme failing which their credit lines will be pulled back and, if so, (i) what are the implications to these businesses, in particular SMEs; and (ii) what is the Ministry's response to such practices by banks.

The Minister for Trade and Industry (Mr Lim Hng Kiang): Mr Speaker, Sir, can I have your permission to take Question Nos. 1 and 2 together?

Mr Speaker: Yes.

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Mr Lim Hng Kiang: Sir, the Special Risk Initiative (SRI) announced in Budget 2009 has significantly enhanced the Government's existing loan schemes to help companies. The SRI has facilitated continued lending by banks to viable companies, which had enjoyed credit lines on commercial terms during good times, but were now facing the danger of reduced credit. Banks have tightened credit lines on account of heightened risk aversion during this period of uncertainty, or perceptions of weaker short-term business prospects facing the companies. Allowing banks to transfer commercial credit lines to the new Bridging Loan Programme reduces the pullback of such funding and allows these companies to continue meeting their business financing needs. Disallowing such line transfers would result in significantly reduced credit for these companies. Financial institutions would, however, do well to comprehensively assess the overall long-term banking relationship with the client company, before deciding whether there is a need to curtail existing commercial credit lines, or to supplement or transfer part of the line to a Government loan scheme.

Sir, Mr Seah Kian Peng also asked for an update on the overall credit situation. Data collected by MAS indicates that the total amount of outstanding commercial non-bank Singapore dollar-loans has fallen by about 4%, from a peak of $163.2 billion in October 2008, to $156.8 billion in January 2009. The month-on-month rate of reduction has, however, eased from 2.2% between October 2008 and November 2008, to 0.65% between December 2008 and January 2009. This overall reduction in commercial loans is reflective of the more difficult business conditions, and was also seen in previous economic downturns.

Mr Seah Kian Peng (Marine Parade): Sir, I thank the Minister for the answer.

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Is he able to give me specific numbers for the questions that I have tabled? Also, would the Ministry be concerned if many banks are indeed asking their clients to switch over from their existing loans to this new package, what it means to the businesses and whether the Ministry itself is taking a proactive approach in understanding the extent of the situation?

Mr Lim Hng Kiang: Mr Speaker, Sir, I think we have to go back to the fundamentals. The Government set up this Special Risk Initiative in order to help our companies and, therefore, we want to be as facilitative as possible. At the same time, of course, we cannot be granting blank cheques to all our companies. So there has to be a balance. On balance, I think we have taken a more facilitative approach.

Sir, I do not have the specific number of the bank transfer loans because the banks, in evaluating the credit needs of the companies, may just extend part and may supplement with the Government loans or may terminate the loans. So there is no clear basis for collecting the data. What I can say is that from the indication that we had previously, the Government loan schemes that we extended were less than $100 million per month in 2008, so that over the year we extended about $1 billion. For the first three months of this year, our average loan approval rate exceeds $300 million. So it is already more than three times what we approved and disbursed. It shows that we are trying to be helpful and we are extending the loans. Of course, we have to be careful that the banks do not just transfer all their bad loans to the Government schemes. And here, we are in constant dialogue with the banks. Both MAS and IE Singapore follow the banks' classification of loans closely. And if the loan is already a non-performing loan, then, of course, the bank cannot transfer the loan

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to the Government schemes. But, on the whole, our attitude is that we try to be as facilitative as possible, and we need to strike this balance.

Mr Seah Kian Peng: Sir, just one other supplementary question. I agree that indeed this package is meant to help the businesses. Does the Ministry contemplate that there could be a situation where every loan – good or bad loan – is transferred from the financial institution's existing portfolio into this scheme? And if it does, are we allowing this to happen?

Mr Lim Hng Kiang: Sir, in our discussions with the banks, I think the banks understand the objective of the Government schemes. We do have a close audit of all the loans. We also have a general rule which we extend to the banks – that we do not expect to see more than 30% of refinancing loans. So 70% will be new loans extended to our companies. This is in the spirit of why the Government has these credit schemes in the first place – to be able to generate new credit facilities for our companies. It is with this understanding that we work closely with all the financial institutions.