The Monetary Authority of Singapore (MAS), together with the Association of Banks in Singapore (ABS), the Life Insurance Association (LIA), the General Insurance Association (GIA), and the Finance Houses Association of Singapore (FHAS), announced a package of measures to help ease the financial strain on individuals and SMEs caused by the COVID-19 pandemic. The package of financial measures complements the initiatives in the Government’s Unity Budget and Resilience Budget to preserve jobs and support enterprises and households.
The COVID-19 outbreak is now global, and increasing in intensity. Stringent measures are being adopted around the world to contain the virus, severely curtailing economic activity. Uncertainty about the trajectory of the pandemic and the depth and duration of an economic recession have also created strains in financial markets globally, which can in turn accentuate the economic crunch.
The Singapore economy contracted sharply in the first quarter of this year, faced with the sudden decline in external demand, disruption in supply chains, and reduced spending at home. MAS expects the economy to remain weak beyond the first half of the year.
In the months ahead, many individuals and SMEs in Singapore will continue to face challenges in managing their cash flows and meeting their financial obligations, such as loan repayments and insurance premiums.
MAS and the financial industry have collaborated on a package of measures to help individuals and SMEs facing temporary cashflow difficulties to ride through the storm. The package has three components:
- help individuals meet their loan and insurance commitments;
- support SMEs with continued access to bank credit and insurance cover; and
- ensure interbank funding markets remain liquid and well-functioning.
The relief for individuals and SMEs will be provided on an opt-in basis, as their cashflow circumstances will differ. Deferring payments increases future obligations and hence borrowers and policyholders should weigh their options carefully. Financial institutions will process all applications expeditiously.
Helping Individuals with Loan and Insurance Commitments
Defer Repayment of Residential Property Loans
Individuals with residential property loans may apply to their respective bank or finance company to defer either (i) principal payment or (ii) both principal and interest payments up to 31 December 2020.
Interest will accrue only on the deferred principal amount; no interest will be charged on the deferred interest payments. Lenders will approve the request for deferment as long as the individual is not in arrears for more than 90 days as at 6 April 2020. Individuals do not need to demonstrate any impact from COVID-19 to obtain the deferment.
Lower Interest on Personal Unsecured Credit
Individuals with unsecured credit facilities from banks or other credit card issuers may apply to their respective lender to convert their outstanding balances to term loans at a reduced rate of interest, capped at 8% (compared to the 26% typically charged on credit cards). The term of the converted loan can be up to five years, depending on the individual’s ability to meet the minimum monthly repayment.
This option is available to all individuals who have suffered a loss of 25% or more of their monthly income after 1 February 2020 and are at risk of incurring substantial arrears. Individuals may apply to their lenders for conversion of their outstanding unsecured debt from 6 April till 31 December 2020.
Defer Premium Payments for Life and Health Insurance
Individuals with life and health insurance policies may apply to their insurer to defer premium payments for up to six months while maintaining insurance coverage during this period. Premium deferment is available for all individual life and health insurance policies with a policy renewal or premium due date between 1 April and 30 September 2020. This measure supplements existing premium relief options available to policyholders, such as taking up a premium loan against the policy cash value or converting to a paid-up policy by reducing the sum assured.
Flexible Instalment Plans for General Insurance
Individuals holding general insurance policies, such as for property and vehicles, may apply to their general insurance company for instalment payment plans while maintaining insurance protection. By working with their insurance company on an appropriate instalment plan, policyholders can pay their premiums in smaller amounts and enjoy coverage for the paid-up period, instead of paying a lump sum premium for the entire policy period at the start.
Supporting SMEs with Access to Bank Credit and Insurance Cover
Banks and finance companies in Singapore have committed to help ease the financial strain on SMEs arising from the need to make principal repayments on their loans during this period, in view of the temporary cashflow constraints that many may face.
Defer Payment of Principal on Secured SME Loans
SMEs may opt to defer principal payments on their secured term loans up to 31 December 2020, subject to banks’ and finance companies’ assessment of the quality of the SMEs’ security. SMEs will also be able to extend the tenure of their loans by up to the corresponding principal deferment period if they wish. This relief will be available to SMEs that continue to pay interest and are in good standing with their banks and finance companies (not more than 90 days past due as of 6 April 2020).
It is estimated that more than S$40 billion of existing loan facilities to SMEs will likely qualify for this opt-in relief scheme. Besides secured term loans, banks and finance companies also stand ready to work with SME customers to adjust their loan repayment schedules for other types of loan facilities.
Lower Interest on SME Loans
Banks and finance companies may apply for low-cost funding through a new MAS SGD Facility for loans granted under Enterprise Singapore’s and . Banks and finance companies can apply for these funds until end December 2020, provided they commit to pass on the savings in funding cost to their SME borrowers. This initiative will potentially lower the interest rates charged to eligible SME borrowers. Details will be provided at a later date.
Assistance with Insurance Premium Payment
Corporates, including SMEs, holding general insurance policies that protect their business and property risks may apply to their insurer for instalment payment plans. General insurance companies stand ready to work with their corporate customers so they can pay their premiums in smaller amounts and enjoy coverage for the paid-up period, instead of paying a lump sum premium for the entire policy period at the start.
Ensuring Liquid and Well Functioning Funding Markets
MAS is providing sufficient liquidity to Singapore Dollar (SGD) and US Dollar (USD) funding markets in Singapore and supporting their effective functioning. This will enable financial institutions to fund themselves, intermediate credit to individuals and businesses, and provide essential financial services. Banks should avail themselves of the liquidity facilities provided by MAS to bolster their ability to meet the SGD and USD funding needs of their customers.
MAS has been providing ample SGD liquidity to the banking system through its daily money market operations (MMO). MAS has also significantly stepped up its provision of USD liquidity to the banking system, increasing the volume of foreign exchange swaps transacted at its daily MMO by about 25% over the past two weeks.
MAS established on 26 March 2020, a new to provide up to US$60 billion of funding to support stable USD liquidity conditions. The USD funds are obtained through a swap facility between the MAS and the US Federal Reserve, which will enable Singapore to play its role in supporting USD funding markets in the region.
Financial Sector Committed to Support the Economy
Mr Ravi Menon, MAS Managing Director said, “It is heartening to see our banks, insurers, and finance companies coming together to support their customers through this difficult time. Our financial institutions are able to do this because of their strong starting position. They have deep capital buffers, ample liquidity, and low leverage. They 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. The package of measures they have put together speaks of a financial industry in Singapore that is robust, responsible, and purposeful. These measures will complement the government’s broader fiscal initiatives and help the Singapore economy recover more quickly and emerge stronger when the pandemic passes – as it surely must.”
Mr Samuel Tsien, Chairman, the Association of Banks in Singapore said, “The shock to the economy from the COVID-19 outbreak is unprecedented. We must take extraordinary measures to address not just a health crisis, but what has developed to become a deep global economic crisis. As banks, it is our social responsibility to do our best to help our affected customers ride through these difficult times and help them recover as soon as possible. Banks have already introduced targeted financial relief programmes on an individual basis for their impacted customers, but we are now doing more as an industry. We are fully behind the measures announced today by MAS. The measures are broad-based and standardised, to provide prompt and direct relief to affected individuals and businesses, particularly SMEs. ABS and the banks in Singapore will work closely with MAS to ensure the continued health of our banking system and the well-being of our economy.”
Mr Lee Sze Leong, Chairman, Finance Houses Association of Singapore said, “Finance companies are fully supportive of the proactive measures announced by MAS to assist our customers, both individuals and businesses, to alleviate the financial burden as a result of COVID-19. We understand the difficulties of our customers during this challenging period and are committed to rendering support. We stand united with the industry in rolling out these measures and are determined to ride out this crisis together.”
Mr Khor Hock Seng, President, Life Insurance Association Singapore said, “The life insurance industry joins nationwide efforts to help people in Singapore get through these challenging times. In addition to the usual options available to keep individual policies going, we are giving customers who need help more time to pay premiums that are due to ensure that their insurance protection remains uninterrupted during this difficult period.”
Mr Craig Ellis, President, General Insurance Association said, “The general insurance sector is committed to ensure that our customers’ protection needs continue to be met at all times. Particularly during these challenging times we recognise the important role we play in supporting customers with their financial difficulties. As in the past, we will get through this together as an industry and a nation.”