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What’s Next After The Moratorium?

Paul Liang is a Senior SME Banker who has been passionate about working closely with SMEs for progress and growth. In his personal capacity, he has also been actively participating in numerous seminars and occasions as a speaker giving talks in English or Mandarin on topics aimed at improving the financial literacy of SMEs.

We have just stepped into October and soon, 2020 will come to an end. This has been a year that has been full of challenges filled with political uncertainty, international trade war, a decelerating domestic economy coupled with the invasion of the highly contagious Covid-19 which has claimed millions of lives internationally alongside its devastating impact on the world and domestic economy whereby the local Gross Domestic Product (GDP) shrunk as much as 17.1% in the second quarter. This could have been worse without the adoption of e-Commerce at an unprecedented rate which registered a growth in excess of 30% during the months of the restricted movement imposed.

“Given the economic impacts, cash flow disruptions and the rush for businesses to diversify, cash adequacy and forward planning have become matters of primary issues.”

Given the economic impact, cash flow disruptions and the rush for businesses to diversify, having adequent cash flow and adopting forward planning measures have become matters of primary issues. While the availability of effective treatments or vaccines, coupled with public efforts to suppress new infections are the short- to medium-term considerations, one should also look to the future as to what the modus operandi will be under “The New Normal” in the longer term.

We have seen various economic initiatives taken by the Government, particularly in the form of low interest financing packages being made available to the small and Medium Sized Enterprises (SMEs) sector which employs 66.2% (2018) of the country’s workforce. Those SMEs which have not benefited from these initiatives while having difficulties in servicing existing bank loans are strongly urged to communicate with the banks which they have taken loans from.

The expiry of the six-month moratorium does not mean the end of further assistance. All commercial banks have taken the initiative well before that to offer Payment Assistance, Payment Relief Programme or better known as Rescheduling and Restructuring (R&R) for all existing bank loans. Banks have been trying to contact their customers in a proactive manner to offer such assistance. However, some may have been missed due to incomplete or outdated contact details or they may not have fully comprehended the relevance of this exercise. Circumstances might have changed given the possibility of another wave of pandemic which has prompted many into taking a more cautious approach.

R&R entails altering the payment terms, tenure or repayment structure of existing bank loans. Examples included are servicing the interest portion only without paying the monthly principal repayment for the next 12 months, and lengthening existing loan tenures. Both are intended to lower monthly obligations and the reduction can be as huge as 70% in the short-term!

“Expiry of the six-month moratorium does not mean the end of further assistance. All commercial banks have taken the initiative well before that to offer Payment Assistance and Payment Relief Programme, or better known as Rescheduling and Restructuring (R&R) for all existing bank loans.”

R&R also means converting other forms of bank borrowings such as Overdraft and Trade Finance which are due in days where the entire sum must be repaid (redeemed) into more manageable term loans repayable over years. Should you worry about any impact this exercise may have on your banking records or additional stamp duty to pay, the answer is a comforting no for the SME entrepreneurs. However, the writer does not assume any responsibility as this observation is drawn from available information in the public domain. Readers are urged to consult their existing banks for a confirmation.

Given the financial assistance thus far, especially R&R the strain on already scarce financial resources to resile, to diversify and to embrace technology, may be relieved to a great extend — steering away those in need from taking more drastic actions such as liquidating their hard-earned fixed assets in the current market which favours bargain hunters.

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