MAS Gives Warning on Tougher SME Credit Conditions

Singapore has, for many years, leveraged the power of small business. Nevertheless, with growing financial concerns, the Monetary Authority of Singapore (MAS) reckons the industry is bound to experience a credit crunch.  The long awaited Financial Stability Review (FSR) does not offer any relief to the SME industry which is already grappling with a myriad of challenges.

Economic Survey

With a tough financial year coming to a close, MAS says that an assessment of the entire economic structure is the best way forward for the SME industry. In the latest Financial Stability Review, the authority warns that there’s more volatility to deal with on a global platform which will make access to financing a bigger hurdle.

Gloomy Outlook for SMEs

The report comes amidst further gloomy economic outlooks on the SME market, with a July 2015 study showing only 13% of loan applications by small businesses get approval. The study, commissioned by the Singapore Business Federation (SBF), had noted that stringent approval standards coupled with a grueling application procedure were to blame for the situation.

However, the volatility of the global markets and the spiraling effect on the country’s economy has now been cited as the major hurdle to SME financing. While Monetary Authority of Singapore (MAS) appreciates the healthy environment for the industry, it also notes the increase in non-performing loans for SMEs.

Another glaring problem noted in the financial review is the high cost of financing in the market which will get worse if the growing global economic concerns are not addressed. In an entire industry stress study banks have already given a warning on higher lending rates for small businesses across the major economic sectors.

With looming economic uncertainties, the report expects even tighter credit conditions for small businesses. The SME credit crunch is not a Singapore issue with Europe and the U.S also grappling with similar concerns.  For Singapore, which has always prided itself in supporting small businesses, the issue is more worrying and the Financial Stability Review (FSR) will no doubt send a shiver down the spines of many entrepreneurs.

With 87% of SMEs facing financial uncertainties in case of a credit crunch, MAS urges more safeguards by these businesses to avoid collapse.  Some of the perils in the review include the ongoing financial upheavals in China which is one of the largest economic partners with Singapore. Other concerns include the stabilizing of the American dollar among other issues.

With tightening credit conditions MAS has cautioned SMEs to review their spending and debt obligations to tackle looming economic uncertainties.

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