CREDIT LINES FOR BUSINESSES

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CREDIT LINES FOR BUSINESSES:

(Measures to ensure continuity): 2.

Er Lee Bee Wah asked the Senior Minister following the turmoil in the financial market (a) how is the Government monitoring the market liquidity environment to ensure that banks continue to lend money to businesses; and (b) whether the Government is aware of banks either withdrawing or reducing the credit lines for building contractors and their suppliers.

Mr Tharman Shanmugaratnam (for the Senior Minister): Mr Speaker, Sir, the Monetary Authority of Singapore (MAS) has been closely monitoring developments in the global financial markets and their impact on Singapore. As far as the inter-bank market is concerned, there has been sufficient liquidity in our system. We have not seen the market freeze up, as happened in some other global financial centres in recent months. Banks have been able to obtain Singapore dollar

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funding among themselves in an orderly manner. Inter-bank funding rates, illustrated by the three-month, Singapore Inter-Bank Offer Rate (SIBOR), eased from over 2% during the quarter-end period in September to about 1% currently. This is lower than the 2.5% that we saw in July last year, before the crisis started. So inter-bank rates are now lower than they used to be, the market remains orderly and we have not seen major disruptions in Singapore inter-bank market.

As at end-September, total bank lending to non-bank customers is still growing. Specifically, loans to the building and construction sector, which Ms Lee Bee Wah was enquiring about, have increased by about 50% in the 12 months to September 2008. So year-on-year, it is a 50% growth in loans to the building and construction sector.

Some tightening of bank credit is inevitable in an economic downturn. But we are unlikely to see this happen on the scale that is occurring in many other parts of the world, where banks are tightening credit not only because of increased risks that they perceive in a downturn, but because they are short of capital. We do not face that problem.

MAS' assessment is that while there is no large scale credit crisis in Singapore, some segments of borrowers may face higher borrowing costs. It will be inappropriate for the Government to direct banks to lend, or to get involved in who they should lend to. These are commercial decisions which the banks themselves have to make, based on their assessment of the risks as well as the relationships that they maintain with their customers.

Our banks make these assessments carefully, and take into account both the short-term risks and their long-term interests in keeping their customers. We should continue to leave these decisions to them. However, what Government can

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and will do is to enhance the various Government schemes that are in place to help our Small and Medium Sized Enterprises (SMEs), possibly also some enterprises that are not SMEs but somewhat larger, to retain access to credit. The Prime Minister has spoken about this on Sunday, and we will be making some announcements quite soon. Most of these schemes will involve Government risk-sharing with the banks on loans to Singapore companies.

The Micro-Loan Programme offers loans of up to $15 million for factory or machinery loans and $50,000 for unsecured working capital respectively. SPRING Singapore and IE Singapore have also introduced the Loan Insurance Scheme (LIS) which offers secured loans for working capital and trade financing. There are, in fact, among the existing schemes existing eligibility limits and quantums of loans. There has been a significant increase already this year in SMEs' use of these schemes. For instance, the amount of loans under the Local Enterprise Finance Scheme (LEFS) and the Loan Insurance Scheme (LIS) for the first eight months of this year has grown by more than 55% over the same period last year.

The Government will be enhancing and stepping up these loans schemes to help our companies, and will announce details soon.

Er Lee Bee Wah (Ang Mo Kio): Sir, to many Singaporeans, it is very disappointed that our local bank, DBS, at the first sign of economic downturn hastily retrenched staff. And based on the recent feedback, a lot of smaller businesses gave a similar feedback that they have viable businesses, but the bank has stopped the credit lending to their companies. So I would like to ask the Minister, whether there is any channel that the businesses

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can turn to should this really happen at the ground because we would not want to see good businesses being killed prematurely.

Mr Tharman Shanmugaratnam: I quite agree with Ms Lee Bee Wah that we would not want to see good viable businesses, which are the majority, being having to cease business or having to scale down significantly their business because of a lack of access to credit. So the Government has been studying this carefully taking in feedback, and we will be making announcement soon on the enhancement of our loan schemes which involve risk-sharing with the banks so as to ensure that we maintain access to credit on the part of our companies. So I would urge the Member to wait, not too long, for announcement of this.