Minister Lim Hng Kiang's oral reply on credit schemes

Question No. 934 of Notice Paper No. 42 of 2009

Question No 935 of Notice Paper No. 43 of 2009

Name and Constituency of Member of Parliament
Mr Seah Kian Peng (MP for Marine Parade GRC)

Question
To ask the Minister for Trade and Industry whether there are cases where banks are asking businesses to switch their loans to the Special Risk-Sharing Initiative scheme failing which their credit lines will be pulled back and, if so, (i) what are the implications to these businesses, in particular SMEs; and (ii) what is the Ministry's response to such practices by banks.

To ask the Minister for Trade and Industry given the various credit schemes introduced by the Government, whether he will provide an update on (i) the total amount of new loans approved by financial institutions to businesses in the last 3 months; and (ii) the total amount of loans which have been rolled over.

Answer
1. The Special Risk Initiative (SRI) announced in Budget 2009 has significantly enhanced the government’s existing loan schemes to help our companies. The SRI has facilitated continued lending by banks to viable companies, which had enjoyed credit lines on commercial terms during good times, but were now facing the danger of reduced credit. Banks have tightened credit lines on account of heightened risk aversion during this period of uncertainty, or perceptions of weaker short-term business prospects facing the companies. Allowing banks to transfer commercial credit lines to the new Bridging Loan Programme reduces the pullback of such funding and allows these companies to continue meeting their business financing needs. Disallowing such line transfers would result in significantly reduced credit for our companies. Financial institutions would however do well to comprehensively assess the overall long-term banking relationship with the client company, before deciding whether there is a need to curtail existing commercial credit lines, or to supplement or transfer part of the line to a government loan scheme.

2. Mr Speaker Sir, Mr Seah Kian Peng also asked for an update on the overall credit situation. Data collected by MAS indicates that the total amount of outstanding commercial non-bank S$-loans has fallen by about 4.0% from a peak of $163.2bn in Oct 08, to $156.8bn in Jan 09.The month-on-month rate of reduction has however eased from 2.2% between Oct08 and Nov08, to 0.65% between Dec08 and Jan09.This overall reduction in commercial loans is reflective of the more difficult business conditions, and was also seen in previous economic downturns.