Reply to PQ on Banks' Lending to Businesses and in Particular to the Building Contractors and Their Suppliers
Question No. 858 Notice Paper No. 281 of 2008 For Oral Answer
Date: For Parliament Sitting on 17 November 2008 Name and Constituency of Member of Parliament Er Lee Bee Wah, MP for Ang Mo Kio
Question Q858: To ask 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, Minister for Finance: 1. 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 the 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 S$ funding among themselves in an orderly manner. Inter-bank funding rates, illustrated by the three-month SIBOR, eased from over 2% during the quarter-end period in September to about 1% currently. This is lower than the 2.5% in July last year, before the crisis started.
2. As at end-September, total bank lending to non-bank customers is still growing. Specifically, loans to the building and construction sector have increased by about 50% in the 12 months to September 2008.
3. 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, but because they are short of capital.
4. 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 take, based on their assessment of the risks as well as the relationships they maintain with their customers.
5. 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 and will do is to enhance the various Government schemes that are in place to help our Small and Medium Sized Enterprises (SMEs) retain access to credit. Most of these schemes involve Government risk-sharing with the banks on loans to SMEs.
6. The Micro-Loan Programme offers loans 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 Loan Insurance Scheme (LIS) which offers secured loans for working capital and trade financing. There has in fact 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 LIS for the first eight months of 2008 has grown by more than 55% over the same period last year.
7. The Government will step up these loans schemes to help our SMEs, and will announce details soon.