MAS easing finance and lending restrictions
(13 February 2017 – Singapore) The Monetary Authority of Singapore (MAS) has announced immediate plans to assist Asia’s growth companies with receiving financing.
According to the regulator, it will develop better technology infrastructure to improve Singapore's competitive edge in areas such as foreign exchange and trade; it will also set up a dedicated group to boost capabilities in data analytics.
Ravi Menon, managing director of MAS, said: "The underlying thrust of MAS' various initiatives is to provide a conducive environment for innovation, which is critical for the future of financial services.
"We'll do this through a judicious regulatory framework and enabling technology infrastructure. And even as we allow more risk-taking, we want to do so without compromising the safety of financial institutions and the stability of the financial system."
Additionally, MAS said this week that it is devoted to easing rules binding finance companies and make it easier for small and medium-sized enterprises (SMEs) to get unsecured loans through them.
As such, Singapore's three finance companies will be able to extend collateral-free loans of up to S$550 million (A$504 million) to small businesses.
The regulator said it will also ease its policy of barring foreign takeovers of finance companies.
It said: "This will accord finance companies greater flexibility to explore strategic partnerships and innovative business models that can strengthen their SME financing business."
MAS said it was prepared to consider an application for a merger or acquisition if the prospective merger partner or acquirer commits to maintaining SME financing as a core business of the finance company.
Another condition is that the newcomer must have expertise in SME financing and present proposals to enhance the finance company's SME lending activities with new technologies, methodologies or business models.
There are three licensed finance companies in Singapore - Hong Leong Finance, Sing Investments & Finance and Singapura Finance. In Q2 2016, they accounted for just under S$7 billion or 8.5 per cent of the total outstanding SME loans of S$82.6 billion.
The regulator will also raise the limit on a finance company's aggregate uncollateralised business loans to 25 percent of its capital funds, from 10 percent.
This higher limit means the three finance companies will be able to extend unsecured loans of up to S$550 million, using their current S$2.2 billion in aggregate shareholders' equity as a proxy for capital funds.
The limit on uncollateralised business loans to a single borrower will be raised to up to 0.5 percent of capital funds, from S$5,000.
In a statement, the regulator said: "These changes will better enable finance companies to serve their SME customers, many of whom require unsecured credit for working capital needs."
Finance companies will be allowed to offer current account and chequing services to their business customers as well, said MAS. They will also be able to join electronic-payment networks such as Inter-bank GIRO, Fast and Secure Transfers (Fast) and Electronic Funds Transfer at Point of Sale, commonly known as Nets. These changes will enable finance companies to provide comprehensive credit and deposit services to SMEs.
Other regulatory restrictions on finance companies, including restrictions on foreign-currency exposure and derivatives trading will be maintained.
To safeguard prudential standards as finance companies grow, MAS will set higher corporate-governance and risk-management standards. MAS said: "This will include stricter rules on related-party transactions and limits on exposure to the property sector."
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