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Covid-19: Borrowers who deferred loan repayments need not pay total sum owed at one go when relief ends, says MAS

SINGAPORE — Individuals and firms which won the right to defer repaying their loans need not repay the full sum when these relief measures end on Dec 31 this year, Monetary Authority of Singapore (MAS) managing director Ravi Menon said on Thursday (July 16).

MAS chief Ravi Menon said on July 16, 2020 that details of arrangements for people to resume paying loans in cases where they have been granted deferrals will be announced later in 2020.

MAS chief Ravi Menon said on July 16, 2020 that details of arrangements for people to resume paying loans in cases where they have been granted deferrals will be announced later in 2020.

  • Those who have deferred loan payments need not pay the sum owed in one go
  • MAS chief says there cannot be a ‘cliff effect’ so repayments will be phased in gradually
  • Nearly 34,000 individuals deferred mortgage payments
  • More than 5,300 SMEs deferred loan payments

 

SINGAPORE — Individuals and firms which won the right to defer repaying their loans need not repay the full sum when these relief measures end on Dec 31 this year, Monetary Authority of Singapore (MAS) managing director Ravi Menon said on Thursday (July 16).

At a media conference held via teleconferencing platform Zoom, Mr Menon said that details of schemes for people to resume loan repayments gradually are being worked out with financial institutions and are set to be unveiled in October, so as to give them time to adjust.

“We can't have a ‘cliff effect’. It can't be that midnight Dec 31, all the reliefs stop and then people have to start making repayments (on) Jan 1, (2021). That will be too sudden and many people may not be prepared,” said Mr Menon.

“On the other hand, we can't indefinitely extend the moratorium. Because there is growing risk and it's not without cost.”

In March, MAS announced a set of relief measures for those facing cash flow problems as the economic impact of the Covid-19 pandemic took its toll on Singapore businesses, mortgage holders and others.

Individuals have been able to apply to defer their mortgage loan repayments till the end of the year. They can also defer paying premiums for life and insurance policies by up to six months, or arrange for a flexible instalment plan for general insurance policies.

Small- and medium-sized enterprises (SME) have also been able to apply for this relief for secured loans or to apply for loans with lower interest rates.

Giving an update on the uptake of these relief measures at the release of MAS’ annual report, Mr Menon said nearly 34,000 individuals have successfully applied to defer the payment of their principal or interest of their mortgage loans.

More than 25,000 have also deferred paying their insurance premiums for six months.

As for SMEs, more than 5,300 have also applied for repayment deferment.

“When you defer repayment you are actually increasing the amount of outstanding debt at the end of the deferment period… And so our hope is that the economic situation improves to the point where they can start making some repayments, not all, but it can't be zero,” he said.

There are also wider macro-economic implications if these relief measures are extended indefinitely. The more debt one accumulates, the more defaults will rise and this will be considered as a non-performing loan in the banks’ balance sheet, which will eat into their capital, limiting their ability to lend more money, he noted.

The MAS is holding discussions with banks and other financial institutions on how to ease borrowers and policyholders into gradually resuming repayments once the measures expire.

“We'll have to consider the economic situation closer to the end of the year. We will have to look at doing a deep analysis with the banks on those borrowers who have chosen to defer, what are their conditions like, (what their) financial situation (is) like and what kind of repayment can they possibly stomach,” Mr Menon said.

“The pace of resuming repayments needs to balance between two things: The cash flow situation of the borrowers and the accumulation of more debt which could increase the risk of default further down the road.”

When asked for further information on how the repayment arrangements would look once they resume, Mr Menon said it is premature to elaborate, except to say that there will be “a whole range of options”.

“It will differ by type of borrower. We could have a different approach towards mortgages, we could have a different approach towards SME loans, towards secured loans versus (unsecured) loans,” he said.

Factors to be considered, in the case of a mortgage loan, for example, would be the size of a person’s loan relative to the value of his or her property.

For SMEs, their cash flow would be one aspect to consider when assessing the extent to which they can start making repayments.

“We have to make a policy that is across the board which also means it may not meet the needs of every single borrower. So we'll have to allow some discretion and the banks will have to exercise discretion as to where they may depart from the baseline that we agree upon so as to accommodate individual borrowers’ circumstances,” he said.

Mr Menon also said that devising the relief measures took just two weeks of discussions but withdrawing them is “much more complex and complicated”, and was a matter which would require months of discussions.

“When we implemented the measures we didn't have to do any study. We just did it because we knew it was going to be necessary for a significant number of people… But now when you want to withdraw you need to really understand the individual situation,” he said.

When asked whether the number of people and companies applying for these relief measures was a cause of concern, Mr Menon said that the numbers are not unduly large relative to the total size of the mortgage market or the total size of SME loan portfolio.

“(This) suggests that people know they can have these deferments but not everyone has rushed in, which is a good sign, because one of our initial fears was what if the majority of people opt for these deferments then they would just be building up debt for no good reason,” he said.

He added that the approval rate of these applications is between 90 and 95 per cent.

“Now we are monitoring their financial conditions and getting an update to see if indeed this is a problem. But I think the numbers on their own do not suggest to me that this is something alarming,” he said.

Besides these relief measures from MAS, the Government has also passed a temporary law which allows individuals and businesses to get some relief from their contractual obligations for as long as six months.

The aim of this law is to give “breathing space” and “staunch the flow of blood” for those struggling over since the deadly coronavirus reached Singapore’s shores, said Law and Home Affairs Minister K Shanmugam during the Parliamentary debate on the temporary legislation in April.

The six broad categories of contracts covered are:

  • Leases and licences of non-residential property

  • Construction-related contracts

  • Event and tourism-related contracts

  • Hire-purchase or conditional sales agreements

  • Certain types of loans for SMEs

  • Option-to-purchase or sales and purchase agreements for residential properties

The law also includes a rental relief framework that compels landlords to waive up to two months of base rent for eligible SMEs that have suffered significant losses owing to Covid-19.

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