LOCAL ENTERPRISE FINANCE SCHEME (Loan commitments and disbursements)

[Mr Speaker in the Chair]

The following Question stood in the name of Mr Ong Kian Min -

Mr Ong Kian Min: To ask the Minister for Trade and Industry (a) whether local businesses are facing financial difficulties as a result of banks and other financial institutions tightening credit and cutting back on credit facilities; (b) how much has been disbursed so far out of the $2 billion loan line set aside for the Local Enterprise Finance Scheme; (c) whether this amount is sufficient to meet the needs of businesses; and (d) what additional steps are being or can be taken to prevent the situation from deteriorating.

Mr Tay Beng Chuan asked the Minister for Trade and Industry whether his Ministry will (i) provide statistics on the number of small and medium-sized enterprises (SMEs) which have applied for the Local Enterprise Finance Scheme as well as the number of SMEs which have been granted approvals for the Scheme for 1997 and January to June 1998; (ii) consider relaxing the qualification criteria for the Scheme so that it can be more accessible to local SMEs; and (iii) be implementing other initiatives in the near future to ensure the SMEs' immediate survival and continued growth.

Dr Lee Tsao Yuan asked the Minister for Trade and Industry whether there has been an increase in the amount disbursed under the Local Enterprise Finance Scheme and, if so, what is (i) the number of companies and the amount disbursed; and (ii) the percentage of successful applicants, on a quarterly basis from the first quarter of 1996 to the second quarter of 1998.

Dr Wang Kai Yuen asked the Minister for Trade and Industry, in view of the economic crisis faced by many of the Small and Medium-Sized Enterprises, whether he will consider allowing those who have taken out loans under the Local Enterprise Finance Scheme to restructure their repayments to ease their cashflow.

Mr Shriniwas Rai (Nominated Member): Question No. 1, Sir.

The Minister for Trade and Industry (Mr Lee Yock Suan): Mr Speaker, Sir, may I have your permission to answer Question Nos. 1 to 4 together as they are related?

Mr Speaker: Yes.

Mr Lee Yock Suan: In March 1998, the Government enhanced the Local Enterprise Finance Scheme (LEFS) for a period of two years with a top-up of $360 million to the LEFS loan line making it a total of $1.1 billion. This is to help ease the credit squeeze on our SMEs.

The LEFS enhancements have benefited our local companies. In the second quarter of this year, the amount of loan committed increased by 28% to $157 million compared to the second quarter last year. Members may wish to refer to Tables (Cols. 739-742) 1 and 2 which have already been distributed. The enhancements made to short-term loans, through an increase in risk sharing and loan quantum, were well received, especially for factoring loans. For April to June 1998, factoring loans approved increased from $6 million to $41 million, an increase of 650% (See Table 1), compared to the corresponding period last year. However, there was a drop in machinery loans as manufacturing companies are cautious about expanding in the current slowdown. Tables - SUMMARY OF YEAR-ON-YEAR COMPARISON: APR-JUN 97 AND 98 FOR NUMBER LEFS LOAN APPROVALS AND LOAN AMOUNT and LEFS APPLICATIONS APPROVED AND AMOUNT DISBURSED (JAN 96 - JUN 98) (Cols. 739-742)

In June 1998, as part of the off-Budget package, the Government has further increased the LEFS loan line to $2 billion. As at June 1998, total loan commitments stood at $1.49 billion, of which $630 million have been disbursed. Table 2 shows the number of loan applications approved by the Productivity and Standards Board. The number has increased from 1,698 in 1996 to 1,981 in 1997. It was 889 in the first half of this year. I do not have data on the approval rate by participating banks.

In response to industry feedback, my Ministry is currently studying further enhancements to the LEFS.

Dr Wang Kai Yuen asked if restructuring of loan repayments is allowed under LEFS. Such a practice is already in place. PSB and EDB do allow companies with healthy order books to restructure their loans based, in the first instance, on the participating banks' assessment of the credit worthiness of the company.

Dr Lee Tsao Yuan (Nominated Member): Could the Minister kindly give the corresponding figures for the total number of those who applied for the loans?

Mr Lee Yock Suan: Sir, the figures given in Table 2 refer to loan applications approved by PSB. PSB receives the applications after they have been processed by the banks. The data that we have at present pertain only to those collected by PSB, ie, when the loan applications have been processed by the banks for their credit-worthiness they are then submitted to PSB for final approval. The figures for applications received and approved by PSB are almost identical because almost every loan application that finally comes to PSB is approved. But what we are interested in is the approval rate by the banks and for that we have to collect the data. I do not have the data at present.

Dr Lee Tsao Yuan: I notice from the figures in Table 1 that there was actually a drop in the number of approvals even though there was an increase in terms of the dollar amount of loans approved. It seems to me a bit odd that there was actually a drop in the number of approvals because the LEFS scheme is meant to help the SMEs and one would expect that there would be an increase in the number of approvals unless of course there was a drop in the number of applicants. Could the Minister kindly explain the drop in the number of approvals?

Mr Lee Yock Suan: If Members will refer to Table 1, it is true that the total number of loan applicants approved has dropped from 455 for the second quarter of last year to 423 for the second quarter of this year. Although the number of approvals has decreased the total quantum has increased by 28%, as I mentioned just now, from $123 million to $157 million.

If Members were to look at the details, the increases are mainly in the short-term loans. For example, factoring loans, the number of applications approved has gone up from 10 to 59 and the quantum has gone up from $5.5 million to $41.3 million. Similarly, for working capital loans, the number of applications approved has gone up from 2 to 11 and the quantum has also increased. On the other hand, the loan applications approved for factory loans have gone down because there were fewer applications. As I explained in my answer, companies are now cautious about expanding. Despite the more generous terms we are giving now, such as larger quantums of loans and larger fixed assets qualifications for applying under the scheme, the actual approval rate has gone down for factory loans. In other words, for machinery loans, it has actually gone down for that quarter. People are still finding out about the scheme and we have to publicise it further. We are hoping that eventually there will be some adjustments. But in the short-term area, I think we have made some significant improvements.

Mr J. B. Jeyaretnam (Non-Constituency Member): I do not know whether this question should be asked of the Minister for Trade and Industry because it concerns the banks' tightening of credit. Has the Government any plans to help the first time home buyers who now find that they are in grave danger of losing their homes?

Mr Speaker: Mr Jeyaretnam, the question is out of order. It is not relevant to the Question that has been asked.

Mr Jeyaretnam: That is what I said, Sir. Is there any other Minister who can answer that because we are talking about banking, financing and credit squeeze?

Mr Speaker: Your question is not related to the topic under discussion.

Mr Jeyaretnam: All right.

Dr Lee Tsao Yuan: Have the Ministry and PSB received any complaints about difficulties in terms of filling in the application form for loans?

Mr Lee Yock Suan: Not that I am aware of, Sir. But if there are problems, we can always help them.