GOVERNMENT'S LOAN SUPPORT PACKAGE FOR BUSINESSES

GOVERNMENT'S LOAN SUPPORT PACKAGE FOR BUSINESSES: 1.

Mr Seah Kian Peng asked the Minister for Trade and Industry if he will provide an update on the Government's $2.3 billion loan support package for businesses, specifically (i) how many applications have been received and what is the approval rate; (ii) whether the loan schemes are meeting the objectives intended and are up to expectations; and (iii) what are the feedback from businesses.

2.

Mr Zaqy Mohamad asked the Minister for Trade and Industry (a) how does his Ministry plan to work with banks

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to relax the lending criteria for loans under the Government's $2.3 billion loan support package for businesses; (b) whether there are plans by the Government to (i) set conditions on the disbursement of the package by the banks or (ii) lend to enterprises directly; and (c) what are his Ministry's KPIs on the disbursement of the package to measure the success of this initiative.

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

Mr Speaker: Yes.

Mr Lim Hng Kiang: Mr Speaker, Sir, let me first set out the broader context against which the Government's loan support schemes exist.

We are facing a broad-based global economic downturn and the Singapore economy is in a recession. Loans may decline further in the coming months. This happened during the Asian Financial Crisis and is likely to happen now as well. Demand for loans will moderate with businesses scaling back investment and expansion plans. Banks will become more cautious with business prospects of borrowers turning more uncertain.

There have also been knock-on effects here from the global financial turmoil. Bond and equity market issuances have thinned substantially, and the foreign banks operating in Singapore, which collectively make up more than 40% of our domestic credit market, were affected by the crisis in the US and Europe. The actions taken by governments and central banks in Europe and the US to recapitalise bank and guarantee bank borrowings have improved confidence in the international financial system and that of individual banks, although there remain significant stresses and uncertainties ahead. Our local banks, on the other hand, are not

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facing a capital or liquidity crunch and their capital adequacy ratios more than meet MAS' requirements. Overall, the interbank market in Singapore continues to function normally; commercial cost-of-funds is low and our financial system remains fundamentally sound.

Our Government's loan schemes aim to complement commercial lending by helping viable but riskier companies access credit. We work through the banking system by sharing a sizable portion of the default risk. These schemes have been in place for many years, and loan commitments had increased even before additional enhancements took effect in December 2008. They rose by around 50% to over $1.0 billion in 2008, compared to $680 million in 2007.

Against a backdrop of economic downturn and greater risk aversion, we moved pre-emptively in December to further enhance our loan schemes. We increased government risk sharing from 50% to 80%, raising loan quantum limits, introducing a Bridging Loan Programme (BLP) for working capital needs, and reducing interest rates by 1.25%.

These enhancements have been in place for less than two months. It is too early to assess their effectiveness but preliminary indications are promising. Participating banks have reported an increase in applications with almost 500 applications submitted in December alone. Many of these applications are still being processed by the banks. Approved loans increased by 30% in December 2008 compared to December 2007 (from $62 million to $80 million). Working capital loans increased while asset based loans saw a dip. This is not unexpected, with businesses cutting back on fixed asset investments amidst the unfavourable economic climate.

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Our next challenge is to heighten awareness of these schemes and assist SMEs in applying for them. Many SMEs may be unfamiliar with the process. SPRING has therefore organised a pipeline of financing seminars in collaboration with the business chambers and industry associations. To facilitate SME loan applications, SPRING, together with our five Enterprise Development Centres and the Singapore Business Federation, has just launched the Financial Facilitator Programme. Under this programme, the six centres will provide financial advisors to advise SMEs on financing strategies and loan applications. SMEs can seek professional financial advice at these centres at no charge. Companies requiring assistance should approach the EDCs for help.

While efforts are being made to help support access to business credit, companies still have the prime responsibility to furnish the relevant data for their applications and to show that their businesses are viable and bankable. It is only natural, in any recession, that companies seeking loans are questioned in more detail and their applications are scrutinised.

Member Mr Zaqy Mohamed has asked how MTI intends to work with banks to relax their lending criteria for the financing schemes, and whether we set conditions on the disbursement of such loans by the banks. We do not have disbursement requirements nor do we influence the bank's risk assessment. It is important that the banks do the proper due diligence in ensuring that loans are extended to companies with viable business propositions. This is also why we do not set utilisation targets.

The Government is also not in a good position to lend to enterprises directly. We do not have the expertise and are not well placed to do so. Credit risk assessment is best done by the professionals in our

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financial institutions, who have the necessary domain knowledge. Our preferred approach is to share a significant portion of the financial institutions' risks, up to 80%, and defray some of their administrative costs. This not only encourages more lending, but also ensures that our public funds go to deserving companies.

Government loans, therefore, play a targeted role; they are not intended to replace commercial lending. Our primary objective remains to assist viable but riskier companies access credit which they would otherwise be unable to get at reasonable rates during this period.

Since implementation of the enhancements, feedback from the business community has been positive. They have welcomed the move to increase risk sharing by the Government, the increased quantums as well as reduced interest rates. There has been continued feedback on the need for working capital and difficulties in securing such loans. We are assessing this and will revise our schemes in line with the situation.

Mr Seah Kian Peng (Marine Parade): Sir, I thank the Minister for his answers. I have the following supplementary questions.

First, he mentioned that about $80 million was approved. I want to know how much this constitutes as a percentage of the total amount that was applied for.

My second supplementary question concerns the process by which businesses need to submit their applications. I hope it can be further simplified and that businesses do not need to submit very voluminous type of applications and very complicated business plans to support their applications.

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Related to this, I would also like to ask what is the average time taken to evaluate and process these applications, because time is of the essence for these credit-starved businesses, and we certainly do not want a case that when approval is given, it is a day late for the companies.

My last supplementary question is to ask the Minister whether he is aware that some financial institutions have not renewed the credit facility on maturity. While this may not be seen as a cut back of facilities, I think the impact can be quite significant. I would like the Minister's response on this.

Mr Lim Hng Kiang: Sir, I thank the Member for his supplementary questions.

First of all, let me explain, as I did in my answer earlier, that the whole credit situation is a very diverse situation. Essentially, the commercial loan constitutes about $160 billion, but a large proportion of this is really to the bigger companies – the multi-nationals and the mid-sized companies. The SMEs' share constitutes about $40 billion. Even within these large amounts, we also have to look at the sectoral composition of these loans. Many of these loans are for development and construction, and many of these, in fact, grew very significantly during the bull run in the last two to three years, and that has increased the size of the loan market.

The Government's share of this market at $1 billion is not a very significant share. Really, we have to depend on our financial system. As I said, by and large, our financial system remains intact. But we must expect that during a period of recession that the banks themselves will be more stringent in their lending criteria and in their scrutiny, and there will be some cut back in the loans.

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During the times when credit was reasonably easy, SPRING did not monitor the ratio of applications versus approvals. We only took in the data from the banks based on loans approved. So I do not have the data comparing the past history of the success of approvals. Now, of course, we are collecting this data because it is something that we are sensitive to.

On the process, we agree that it should be as simplified as possible, and we are working together with the participating financial institutions to make sure that the process is simplified. And, similarly, time taken should not be unduly long. But I must add a word of caution. It depends really on the borrower's level of relationship with the banks. If he has already built up a very long-standing relationship with the bank, the relationship manager knows his business very well. So when he comes back to renew or to extend his loan or to have this new credit facility that has been enhanced, it is not a problem. That was the feedback that we got. For some of the SMEs that have taken advantage of the Government's schemes – the LEFS, LIS, micro-loan, etc – and they have built up this relationship with their banks, when we expanded the scheme and they renewed or expanded the scheme with the banks, there was very little problem. The problem comes when a borrower is building a new relationship with the bank and he has to explain to the bank the nature of his business and his business plans, and the loan officer must develop a good understanding of his operations and also a good assessment of his prospects going forward. So we cannot dictate time. This must be left to the banks and also to the nature of the relationship between the applicant and the bank.

The last question is on the renewal of credit facilities. Anecdotally, the evidence

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of the feedback given to us is that many of the banks in Singapore, both the local banks and the foreign banks, targeted SMEs in a significant way in the last few years. They have built up the loan portfolios for the SMEs. So we are starting off from a position of greater strength than, say, five years ago. Five years ago, I think the penetration of the access of credit by our SMEs in the banking system was less. This time round, I think we have a better base to work with.

At the same time, it also means that when some foreign banks, for example, have to cut back on the credit facilities because of instructions from their head office, the impact now reaches out to some of our SMEs who previously had not had the access through the foreign banks.

Another feedback we got is that some of our SMEs, in fact, work through both local and foreign banks. And the typical approach is that their credit facilities with the local banks are secured on very concrete collateral, whereas their relationship with the foreign banks is based on accounts receivable. So when situations get tighter, that is, in fact, the first facility that gets cut.

These are some of the feedback that we are getting and we are working together with the various banks to see how we can make the system better and still ensure credit is available to our companies.

Mr Inderjit Singh (Ang Mo Kio): Sir, since we are administering the schemes through the financial institutions, can I ask the Minister whether they have seen any of the financial institutions which have withdrawn from some of the Government schemes, whether local or foreign?

Mr Lim Hng Kiang: Sir, we have 14 financial institutions participating in our

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various schemes. In fact, SPRING is reaching out to more financial institutions to get them into the net. As I said, the level of participation by the 14 financial institutions vary. Some are very active, commanding a significant part of the market share – 20%-25%. Others are very small players with about 1%-2% of market share.

Dr Lily Neo (Jalan Besar): Sir, in view of the fact that many banks may be averse to lending at such times and that many SMEs are in urgent need of working capital, will the Minister not reconsider administering this loan support package directly to businesses in order to get better results at such a crucial time?

Mr Lim Hng Kiang: Sir, as I explained in my reply earlier, building up a relationship with the borrower takes a lot of time, a lot of effort and a good understanding of the business. Therefore, it is not something that we can do overnight. Obviously, SPRING or IE Singapore is not geared up to do this. And this is why, over the years, we have always worked through the banks – through the loan officers, through the relationship managers who have a very intimate knowledge of the borrowers' needs

as well as competency and domain knowledge of what is involved in credit assessment. So it is not possible for us in a short time or is it wise for us to start up a lending operation within SPRING or IE Singapore.

Mdm Ho Geok Choo (West Coast): I would like to ask the Minister, in view of the fact that small businesses and new start-ups will become sizeable enough to be a pillar of our economy, other than the existing $2.3 billion loan support package, what other programmes are there to augment these SMEs and start-ups in this economic downturn.

Mr Lim Hng Kiang: Mr Speaker, Sir, we have an entirely different eco-system for helping start-ups with SEED and various

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components of the venture capital market and helping a company through the various stages of growth. In the November announcement by the Senior Minister of State, Mr Iswaran, we also enhanced that part of the eco-system for start-ups.

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EMPLOYMENT FORECAST FOR 2009: 3.

Mdm Halimah Yacob asked the Minister for Trade and Industry (a) what is the employment forecast for 2009; (b) which are the growth sectors; and (c) which sectors will be worst affected by the global economic crisis.

Mr Lim Hng Kiang: Mr Speaker, Sir, the global economic environment has deteriorated significantly since the middle of last year. The Singapore economy has entered a recession. We have already seen three consecutive quarters of negative quarter-on-quarter GDP growth and two consecutive quarters of negative year-on-year GDP growth.

The economic downturn has spread to all the key sectors of our economy. The sectors that have been hardest hit by the crisis are those most exposed to the external economic environment, such as manufacturing, tourism, transport and wholesale trade, as well as sentiment-sensitive sectors such as financial services.

Overall, non-oil domestic exports fell by 7.9% last year. The fall was especially steep in the last few months of 2008. Non-oil domestic exports declined by 20.8% in December. Container throughput and sea cargo handled in December contracted by 13% and 18% respectively.

This contraction in exports is being experienced by many other regional economies too. For instance, exports from Taiwan and South Korea declined by 40% and 17% respectively in December, while Malaysia saw a 5% decline in its exports in November.

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The outlook for 2009 is a difficult year. Consumer demand in our key export markets, such as the US and Europe, will remain weak. Our manufacturing sector is therefore likely to continue facing a slowdown this year. Regional trade will also slow down further, which will drag down the sectors relating to transport and wholesale trade.

The financial services sector will also experience a sharp slowdown because of the impact of the financial crisis. Although our banks have largely escaped the direct impact of the crisis because of their low levels of exposure to distressed assets, the crisis has hit the sentiment-driven segments of the financial sector which include the trading of stocks, shares and bonds, foreign exchange trading as well as fund management activities.

The domestically-oriented sectors of our economy will also experience moderation in growth. Weaker consumer sentiments among Singaporeans have affected the retail sector and the property market. Retailers and restaurants are seeing slower business as consumers are reining in discretionary spending. Private home prices fell for a second consecutive quarter at the end of 2008 according to advance estimates from the URA, hurt by a drop in investor sentiments amid the growing economic downturn.

However, there are some sectors which are still showing positive growth. The construction sector and supporting activities, such as architectural and engineering services, have benefited from a strong pipeline of projects that were awarded in the past two years. The information and communications sector has also been resilient, as it is supported by major public sector IT initiatives and growth in international call volumes. The

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healthcare and education sectors are also showing steady growth. However, these sectors collectively make up slightly less than 10% of our economy, and their growth will not be able to compensate for the declines in the other sectors.

Another area which gives us some optimism is the pipeline of investments. I think some of you may have heard EDB's announcement just this morning about the investment commitments last year and their projections for this year.

Mdm Halimah has asked about the employment outlook for 2009. The strong employment growth which we have enjoyed in recent years will ease significantly. Unemployment and retrenchments will rise. The labour market has already softened in the second half of 2008. We expect employment growth to further weaken and job losses to increase, in tandem with the economic slowdown.

However, new jobs will still be generated from the growth sectors. For example, the construction sector is likely to continue hiring this year. In addition, the healthcare sector will continue to grow over the next two years with the development of healthcare facilities, such as the opening of the new Khoo Teck Puat Hospital. The civil service will also continue hiring: the Ministry of Education recently announced that it will be recruiting more than 7,000 teachers and support staff in 2009, while the Ministry of Home Affairs is looking to fill more than 1,000 vacancies across the various Home Team departments. In the tourism sector, the Integrated Resorts have already started their hiring efforts and are expected to provide more than 20,000 job opportunities over the next few years. And I have also referred to the EDB's announcement this year. EDB estimates that with the new investments coming on-stream, becoming operational this year, these will generate about 6,000 new jobs.

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In closing, let me assure Mdm Halimah that we are closely monitoring the economy to identify the sectors vulnerable to retrenchments. In collaboration with our tripartite partners, the Government has already implemented the $600 million SPUR programme to help our workers retrain and upgrade their skills, so as to remain employable and employed during and beyond the economic downturn.

Mdm Halimah Yacob (Jurong): I would like to ask the Minister – he mentioned some figures – what is the total number of jobs expected to be created this year. I would also like to ask the Minister, of those numbers of jobs created, how many of these jobs will be for PMETs and how many for non-PMETs. And what is the expected unemployment rate for this year?

Mr Lim Hng Kiang: I hope Members will appreciate that during this period of great uncertainty, it is very hard for us to be making these projections with a great deal of uncertainty. What we have done is to develop a bottoms-up approach, look at all the different sectors and identify the job opportunities in each sector and also to develop a programme to see how Singaporeans can be trained or retrained to fit into these sectors. So, in my answers, I have mentioned several of these sectors and, if you add them up, I think this will give Members a general feel of what is available in those sectors that we have identified. Of course, in the rest of the economy, there will be some growth, some job creation as well as some retrenchments and cut back. I think the situation is evolving and will become clearer over time.

Ms Irene Ng Phek Hoong (Tampines): Sir, the Minister painted a very grim picture of the economy with Singapore entering a recession. Can I ask the Minister for his assessment on when he thinks Singapore can get out of the

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recession? We are aware that much depends on the global situation. But can I ask the Minister for his sense of the economic projection?

Mr Lim Hng Kiang: I was about to use the same answer as I had just now, that we are facing quite an uncertain future. What I can say is that the recession that we are facing now is quite different from the recession that we faced before. If you look back, in 1985 and 1986, that recession was because of our cost structure becoming uncompetitive. The main cause was domestic, and when we made the changes and righted ourselves, I think there was a rebound. In 1998, it was a financial crisis in Asia. The rest of the world managed to grow reasonably well although we were quite close to the epicentre of the Asian financial crisis and therefore sectors like our financial services and our share market was very adversely affected, but the rest of the economy was less affected. So when the Asian financial crisis was resolved, the rest of the economy pulled out and we rebounded quite quickly. Similarly for the 2001 recession, that was largely an IT bubble and also a major correction in world stock market. 2003 was also a very narrow recession created because of SARS. What we are facing today is actually quite unprecedented. First of all, it is a global downturn. It is a huge de-leveraging process. There have been global imbalances built up over the years and now it is righting itself. So the whole external demand has declined sharply. There is very little we can do to try and mitigate the impact of such a major decline in the external demand. Secondly, the global financial markets are affected. As you know, financial systems are crucial to the workings of a global economy. So I think these two characteristics make this a very sharp recession. The positive thing is that, of course, in terms of the financial crisis, we are further away from the epicentre. The epicentre is in US and Europe, not in Asia.

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But, nonetheless, we are facing the aftershocks and the repercussions of those difficulties. If you look at the reports that have come out, the consensus in most reports among economists and analysts is that the most optimistic forecast is for the US and the European economies to recover only in the second half of this year. So we cannot expect to see anything earlier than that. And the second thing we ought to note is that most analysts do not expect a sharp recovery, they expect a very slow recovery.

Mr Speaker: Mdm Halimah, last question.

Mdm Halimah Yacob: I do appreciate the difficulties because of the great uncertainty and that you depend a lot on the bottoms-up information on the number of jobs created. But can I ask the Minister, what is the base of coordination of all the bottoms-up approach? What is the total number of jobs available, particularly there are some reports that new school leavers and university graduates will be hard put in getting jobs? What is his comment on that? I would also appreciate his comment on the other question about the number of jobs that has been created for PMETs?

Mr Lim Hng Kiang: I would like to assure the House that we are monitoring this situation very closely – MTI, MOM and the various agencies, together with our tripartite partners, NTUC and the business chambers. Our approach has been a very pragmatic one. We look at the different sectors. You will not see robust job growth in the same way that we had seen in the last three years. But there will still be a significant job growth, as I mentioned, in the various sectors, like tourism with the IRs. We also have a very strong pipeline of investments, and EDB is confident that these investments

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will generate 6,000 jobs this year. So if you add it up, it is a significant number of jobs that will be sufficient to cater for new school leavers. They are definitely more than 30,000 jobs all in. But what we are not sure of is the retrenchments that will likely to take place in the existing economy and also the retraining requirements, as companies restructure and some companies have to cut back. We are very conscious of the difficulties faced by the PMETs, and I think we have got specific programmes to target this group of Singaporeans to enable them to retrain for the jobs that are available.