The raft of financial support measures for businesses and consumers announced by the Monetary Authority of Singapore (MAS) threaten to reduce the revenue of the island’s three largest banks by up to 18% in 2020.
The deferred payments and rate cuts on mortgage and personal loans included in Singapore’s coronavirus relief measures could cost United Overseas Bank 18% in lost revenue. Singapore’s longest-established bank OCBC could lose 16%.
Revenue for the Development Bank of Singapore, the largest bank in the city-state and the whole of South-East Asia, could fall by 14% this year.
Assistance provided by the banks will include payment deferrals and lowered rates for bank loans and insurance premiums targeting both retail and SME clients.
The country’s largest bailout in history
MAS, Singapore’s central bank and financial regulator, in coordination with the island’s leading financial bodies, has unveiled a S$48.6bn (US$33.8bn) stimulus package. It’s the largest government spending and tax-relief programme in the country’s history.
Along with the first measures introduced in February, this latest programme raises the overall relief plan to S$55bn, or 11% of GDP, and is aimed at protecting jobs and supporting businesses.
“We are facing an unprecedented crisis of a highly complex nature. In economic terms alone, this will likely be the worst contraction since independence,” said Heng Swee Keat, minister of finance and deputy prime minister.
Strong balance sheets
MAS managing director Ravi Menon has highlighted strong balance sheets as the reason that local banks will ride out the economic storm and provide relief.
In a statement, Menon made predictions for a 2020 recession. Discounting any immediate risk of inflation, the central bank anticipates job losses and slower wage growth.
“The package of measures they have put together speaks of a financial industry in Singapore that is robust, responsible, and purposeful. These measures will complement the government’s broader fiscal initiatives and help the Singapore economy recover more quickly and emerge stronger when the pandemic passes – as it surely must.
For banks, meanwhile, the relief measures are not without some benefits. The lower cost of credit is expected to mitigate losses from delayed revenue and lost interest income.