The Monetary Authority of Singapore will relax long-standing rules preventing finance companies from providing comprehensive lending services to small and medium sized enterprises (SMEs) in Singapore over the course of 2017.
According to MAS, the three licensed finance companies - Hong Leong Finance, Sing Investments & Finance and Singapura Finance - together hold SGD 16 billion in combined assets and accounted for just under SGD 7 billion of outstanding SME loans. MAS recognises the potential role these finance companies could have in offering niche, personalised and customised solutions to SMEs.
The relaxation will enable finance companies to provide the following services to SMEs:
- Unsecured credit for working capital needs: the 10% cap on a finance company’s aggregate uncollateralised business loans will be raised to 25% of the finance company's capital funds and the SGD 5,000 limit on uncollateralised business loans to a single borrower will also be raised to 0.5% of capital funds; and
- Wider range of credit and deposit services: businesses will be offered current account and cheque services, and the finance companies will also be allowed to join electronic payment networks such as Inter-bank GIRO, Fast and Secure Transfers and Electronic Funds Transfer at Point of Sale.
Reversing its policy of barring foreign takeovers of finance companies, MAS will also allow finance companies to explore strategic partnerships and innovative business models with suitable foreign merger partners or acquirers.
The foreign partner must, however, meet these conditions:
- It must commit to maintaining or enhancing SME financing as a core business of the finance company;
- It must be able to demonstrate expertise in SME financing; and
- The takeover must enhance the finance company’s SME lending activities with new technologies, methodologies or business models.
Post-acquisition, the finance company must remain focused on serving the domestic SME market.
Anticipating business growth as a result of this regulatory relaxation, MAS will ensure finance companies maintain prudential standards and limit their business risks by requiring finance companies to:
- Enhance their corporate governance and risk management;
- Abide by stricter rules on related party transactions and limits on exposures to the property sector; and
- Continue to observe regulatory restrictions which remain unchanged, such as restrictions on foreign currency exposures and derivatives trading.
We will continue to monitor developments and we will update you on further changes MAS makes to its guidelines and notices affecting finance companies.