<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Jan 24, 2009
</TR><!-- headline one : start --><TR>Don't 'tighten so tight' <!--10 min-->
</TR><!-- headline one : end --><TR>Credit lines to SMEs can be loosened as Govt takes on more loan risk </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Gabriel Chen
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ST PHOTO: JOYCE FANG
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<!-- START OF : div id="storytext"-->BANKS have been urged to play their part and extend credit to local firms now that the Government is shouldering more of the risk of loans.
Trade and Industry Minister Lim Hng Kiang said yesterday that it was reasonable for banks to act more defensively during the crisis and be more careful when lending.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>$5.8b set aside to boost lending
THE Special Risk Sharing Initiative (SRI) is a new lending scheme that sees the Government take on more risk in bank loans to companies - and making far bigger loans than before:
A new Bridging Loan Programme will provide loans of up to $5 million, up from $500,000. The Government's share of risk on these loans will increase from 50 per cent to 80 per cent.
</TD></TR></TBODY></TABLE>But if they 'tighten so tight', he said, it might result in a spiral downwards.
The way ahead? He recommended a more balanced approach.
'If we do this with the right spirit and approach - act defensively but have some slack to stakeholders - then collectively we'll get through this in a better shape,' he said.
He cited the example of local shipyards, which are supported by an army of suppliers and other small and medium-sized firms (SMEs).
If the shipyards act too defensively and start tightening the credit lines of suppliers, many of the smaller firms will face difficulties and might go under.
Mr Lim said it would not be in the interest of shipyards to do that and they realise they must extend better terms to their suppliers.
The $5.8 billion Special Risk-Sharing Initiative unveiled in Thursday's Budget included a broad range of measures designed to stimulate bank lending.
One involves tweaking the existing bridging loan programme.
It will now cater to loans as large as $5 million, up from $500,000. It will be in effect for one year beginning Feb 1.
The Government's share of risk on these loans will rise from 50 to 80 per cent.
Yet there are still fears among bosses that banks will remain risk-averse and will hold back on making vital loans.
One argument is that the 20 per cent share is still too risky for banks, especially as they could be extending a large sum, perhaps $5 million, of unsecured loans to one borrower.
Banks deny the higher loan quantum will be an issue.
So long as the borrower is a viable business, then the new bridging loan scheme simply makes them more willing to lend.
'The fact that it has been extended to a $5 million loan quantum means you can give it to much bigger companies who've better chances of survival,' said the head of commercial banking at one bank.
'The impact will be better, because bigger companies will generate more jobs and more production value.'
Mr Ajay Kanwal, Standard Chartered Bank's regional head of consumer banking for South-east Asia, said the Government's increase in risk-sharing will 'certainly prompt us to look at all our customer needs more seriously'.
Mr Kanwal dismissed the notion that the new scheme could open the floodgates, with firms demanding ever bigger loans.
'Look, there're borrowers capable of borrowing $100,000, and some borrowers capable of borrowing $2 million,' he said.
'Are you going to give $1 million to every customer who walks in? That's not the scheme. The expectation is that banks will do the credit evaluation, of course.'
Lenders say the criteria to borrow will always include factors like the viability of the business and its strategy, management quality, cash flow and collateral.
'We don't look at this and say we're only going to lose 20 per cent. It still has to be a good business decision,' said Hong Leong Finance president Ian MacDonald.
However, some bankers say most of the lending will be to existing customers, rather than new ones.
They also hope the Government could still bear an even higher percentage of the risk of default.
Mr Lim noted yesterday that the arrangement between the Government and banks is the 'correct sharing of risks'.
'The bank must have some stake in this, so that'll ensure the credit process is done properly,' he said. [email protected]
</TR><!-- headline one : start --><TR>Don't 'tighten so tight' <!--10 min-->
</TR><!-- headline one : end --><TR>Credit lines to SMEs can be loosened as Govt takes on more loan risk </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Gabriel Chen
</TD></TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
ST PHOTO: JOYCE FANG
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"-->BANKS have been urged to play their part and extend credit to local firms now that the Government is shouldering more of the risk of loans.
Trade and Industry Minister Lim Hng Kiang said yesterday that it was reasonable for banks to act more defensively during the crisis and be more careful when lending.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>$5.8b set aside to boost lending
THE Special Risk Sharing Initiative (SRI) is a new lending scheme that sees the Government take on more risk in bank loans to companies - and making far bigger loans than before:
A new Bridging Loan Programme will provide loans of up to $5 million, up from $500,000. The Government's share of risk on these loans will increase from 50 per cent to 80 per cent.
</TD></TR></TBODY></TABLE>But if they 'tighten so tight', he said, it might result in a spiral downwards.
The way ahead? He recommended a more balanced approach.
'If we do this with the right spirit and approach - act defensively but have some slack to stakeholders - then collectively we'll get through this in a better shape,' he said.
He cited the example of local shipyards, which are supported by an army of suppliers and other small and medium-sized firms (SMEs).
If the shipyards act too defensively and start tightening the credit lines of suppliers, many of the smaller firms will face difficulties and might go under.
Mr Lim said it would not be in the interest of shipyards to do that and they realise they must extend better terms to their suppliers.
The $5.8 billion Special Risk-Sharing Initiative unveiled in Thursday's Budget included a broad range of measures designed to stimulate bank lending.
One involves tweaking the existing bridging loan programme.
It will now cater to loans as large as $5 million, up from $500,000. It will be in effect for one year beginning Feb 1.
The Government's share of risk on these loans will rise from 50 to 80 per cent.
Yet there are still fears among bosses that banks will remain risk-averse and will hold back on making vital loans.
One argument is that the 20 per cent share is still too risky for banks, especially as they could be extending a large sum, perhaps $5 million, of unsecured loans to one borrower.
Banks deny the higher loan quantum will be an issue.
So long as the borrower is a viable business, then the new bridging loan scheme simply makes them more willing to lend.
'The fact that it has been extended to a $5 million loan quantum means you can give it to much bigger companies who've better chances of survival,' said the head of commercial banking at one bank.
'The impact will be better, because bigger companies will generate more jobs and more production value.'
Mr Ajay Kanwal, Standard Chartered Bank's regional head of consumer banking for South-east Asia, said the Government's increase in risk-sharing will 'certainly prompt us to look at all our customer needs more seriously'.
Mr Kanwal dismissed the notion that the new scheme could open the floodgates, with firms demanding ever bigger loans.
'Look, there're borrowers capable of borrowing $100,000, and some borrowers capable of borrowing $2 million,' he said.
'Are you going to give $1 million to every customer who walks in? That's not the scheme. The expectation is that banks will do the credit evaluation, of course.'
Lenders say the criteria to borrow will always include factors like the viability of the business and its strategy, management quality, cash flow and collateral.
'We don't look at this and say we're only going to lose 20 per cent. It still has to be a good business decision,' said Hong Leong Finance president Ian MacDonald.
However, some bankers say most of the lending will be to existing customers, rather than new ones.
They also hope the Government could still bear an even higher percentage of the risk of default.
Mr Lim noted yesterday that the arrangement between the Government and banks is the 'correct sharing of risks'.
'The bank must have some stake in this, so that'll ensure the credit process is done properly,' he said. [email protected]
