Parliamentary Replies
Published Date: 19 February 1998

Government Assistance to Companies Affected by Regional Financial Turmoil

Issues Raised in Parliament

Government Assistance to Companies Affected by Regional Financial Turmoil

For Parliament Sitting on 19 Feb 98

To ask the Deputy Prime Minister, that given the current economic turmoil in the region, how will the Government help companies which are badly affected by both a reduction in demand and a tightening of bank credit, and will the Government work with financial institutions to assist such companies.

1. Singapore cannot escape the regional financial turmoil which affects our neighbours. The Committee on Singapore's Competitiveness has gathered feedback from our businessmen on how they have been affected. The impact has been mixed, depending on the company's customers and whether its costs and revenues are denominated in regional currencies, S$ or US$. Those with export markets outside the region have not been too badly affected. But those who export to the region for local consumption have been hit by the weaker demand and the problem of debt collection.

2. Some tightening of bank credit is inevitable at a time of uncertainty. However, MAS figures show that overall bank lending to non-bank entities is still growing, not contracting. Loans to non-bank customers continued to increase, from $133 billion as at June 1997 to $139 billion as at September 1997 to $143 billion as at December 1997. Interbank rates have also been declining in recent weeks, indicating an easing of liquidity. After hitting a high of 14% in January, the 3-month interbank rate is now back down to 6?%.

3. I know that companies are concerned not just about the interest rate, but also that banks may be pulling back loans altogether. It is difficult and inappro-priate for the Govern-ment to intervene in such cases. These are commercial lending decisions, which the banks themselves have to take, because the banks, and not the Govern-ment, will bear the consequences of the decisions.

4. Mr Lee Yock Suan addressed this issue in his speech on Chinese New Year's Day at the SCCCI. I quote:

"One issue which companies have highlighted to us is the tightening of bank credit as a result of the currency turmoil. There have been some calls for the Government to help companies tide over this credit squeeze. We are examining how to help the economy and companies through this difficult period. There are schemes in place such as the Local Enterprise Finance Scheme, where the Government joins the banks to extend credit to small and medium local enterprises, and share the credit risks. Commercial lending decisions by banks, both local and foreign, must continue to be based on the banks' assessment of their relationship and credit risks. Banks will naturally take a long term view of their customer relationships."

5. However, what the Government can do is to enhance the Local Enterprise Finance Scheme (LEFS). The Minister for Trade & Industry will be explaining this in his reply to Mr Tay Beng Chuan.

6. We must take the regional economic slowdown in our stride. The Govern-ment will continue to invest in economic infrastructure to build up our capabilities and productive capacity. Companies too should use this opportunity to trim costs, restructure and upgrade productivity, so that when the region recovers and becomes more competitive, they will not be left behind.