By Chanyaporn Chanjaroen
(Bloomberg) -- Singapore’s central bank said lenders will offer additional relief for consumers and companies battered by the sharp economic slowdown, including a freeze on mortgage and business loan payments and cuts to credit card rates.
Banks and finance companies can defer both principal and interest payments on residential mortgages through Dec. 31, the Monetary Authority of Singapore said in a statement late Tuesday. Small and medium-sized firms can opt to defer principal payments on their secured term loans until the end of the year, the MAS said.
The central bank’s latest loan relief adds to several other fiscal and monetary measures the city state is employing after the coronavirus pandemic induced the worst economic downturn in a decade in the first quarter. More than S$40 billion (US$28 billion) of existing loan facilities to small businesses will likely qualify for the relief plan.
“The shock to the economy from the COVID-19 outbreak is unprecedented,” Samuel Tsien, chairman of the Association of Banks in Singapore, said in the statement. “We must take extraordinary measures to address not just a health crisis, but what has developed to become a deep global economic crisis.”
Given deep capital buffers, ample liquidity and low leverage, Singapore lenders “are well placed to not only ride out the economic storm caused by Covid-19, but also provide meaningful relief to individuals and SMEs affected by the crisis,” MAS Managing Director Ravi Menon said in the release.
DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., Singapore’s three largest lenders, are already taking steps to help small firms and individuals with measures that include deferring principal repayments and liquidity relief.
Given the banks’ combined asset books of nearly S$1.5 trillion, “the anticipated impact on the Singaporean banks’ earnings will be small” relative to the estimated S$40 billion for qualifying SME loans, Kevin Kwek, a banking analyst at Sanford C. Bernstein in Singapore, said in an emailed reply to questions. He added the Singapore lenders are unlikely to cut their dividends, as U.K. banks did late Tuesday.
“Since the balance sheet isn’t likely at this point to take a big hit and capital ratios are robust, this year’s promised dividends won’t be affected,” Kwek said. “Next year will be a question of how much earnings are affected.”
Still, the three major Singapore banks are suffering from the economic slowdown, which has driven down interest rates and increased the risk of loan defaults. DBS shares dropped 2.2% to S$18.16, taking this year’s decline to almost 30%. UOB shares fell by about the same measure, with a year-to-date drop of 28%. OCBC retreated 1.5%, with a loss of 23% in 2020.
The new measures announced by the central bank will also allow life and health insurance policy holders to defer premium payments for up to six months, while customers with property and auto insurance policies can set up an installment payment plan.
“Deferring payments increases future obligations and hence borrowers and policy holders should weigh their options carefully,” the MAS said. “Financial institutions will process all applications expeditiously.”
International banks operating in Singapore including Citigroup Inc. and Standard Chartered Plc are also joining the relief measures.
Other highlights of the new measures:
Companies, including SMEs, holding general insurance policies that protect their business and property risks may apply to their insurer for installment payment plans.
Banks and finance companies may apply for low-cost funding through a new Singapore-dollars facility for loans granted under Enterprise Singapore
Homeowners can apply for up to nine months relief on principal payments and/or interest payments on their mortgages. Interest will continue to accrue on the deferred principal amount.
Consumers with credit card balances whose income has been cut by 25% or more can apply for a term loan of as many as five years. The rate would be capped at 8%, compared with 26% typically charged.
Banks can also access the US$60 billion of MAS funding established on March 26
Deputy Prime Minister Heng Swee Keat last week unveiled a second fiscal support package of S$48 billion to help businesses and consumers hurt by the virus outbreak. Gross domestic product fell an annualised 10.6% in the first quarter from the previous three months, and the government projected a severe recession for the full year.
Singapore’s central bank also took unprecedented easing steps Monday to support the trade-reliant economy. The MAS, which uses the exchange rate as its main policy tool rather than a benchmark interest rate, lowered the midpoint of the currency band and reduced the slope to zero. That implies the regulator will allow for a weaker currency to bolster exports.
© 2020 Bloomberg L.P.