The Monetary Authority of Singapore (MAS) today announced measures to enhance the banking system’s access to Singapore dollar (SGD) and US dollar (USD) funding. The new measures will strengthen banking sector resilience, promote more stable SGD and USD funding conditions, and support credit intermediation amid continued economic headwinds from the COVID-19 pandemic.
Establishment of the MAS SGD Term Facility
2 A new MAS SGD Term Facility will be introduced to provide banks and finance companies an additional channel to borrow SGD funds at longer tenors and with more forms of collateral. While banks and finance companies in Singapore maintain healthy liquidity buffers, MAS is introducing this Facility pre-emptively to provide greater certainty of access to central bank liquidity. This will help to contain any liquidity strains before they pose a serious challenge.
3 The new Facility will offer SGD funds in the 1-month and 3-month tenors, complementing the existing overnight . A wider range of collateral comprising cash and marketable securities in SGD and major currenciesThe SGD Term Facility will accept a wider range of cash and marketable securities than what is currently accepted at the overnight MAS Standing Facility. The enhanced collateral pool will include cash and investment-grade (BBB- and above) debt securities issued by governments, central banks, public sector entities, and non-financial corporations, denominated in SGD and G10 currencies. Further details of the facility will be published on the in the week of 28 September 2020. will be accepted. Pricing will be set above prevailing market rates, in line with the Facility’s objective to serve as a liquidity backstop. The Facility will be launched in the week of 28 September 2020.
Acceptance of Residential Property Loans as Collateral at the MAS SGD Term Facility
4 Domestic systemically important banks (D-SIBs)D-SIBs are banks that are assessed to have a significant impact on the stability of the financial system and proper functioning of the broader economy. As of September 2020, the D-SIBs in Singapore are – DBS Bank, Oversea-Chinese Banking Corporation, United Overseas Bank, Citibank, Malayan Banking Berhad, Standard Chartered Bank, and the Hongkong and Shanghai Banking Corporation. that are incorporated in Singapore will be able to pledge eligible residential property loans as collateral at the MAS SGD Term Facility. The acceptance of residential property loans as collateral is only available to D-SIBs and is in line with the practices of major central banks. The expansion of acceptable collateral will help these banks conserve their more liquid instruments and strengthen the effectiveness of the MAS SGD Term Facility in providing liquidity support.
5 MAS will also raise the asset encumbrance limit imposed on locally-incorporated banks under the Banking Act (Cap. 19). The asset encumbrance limit will be increased to 10% of a locally-incorporated bank’s total assets, up from the current limit of 4%. This increase will give the locally-incorporated banks greater leeway to pledge residential property loans as collateral to access funding, so that they can support the financial needs of individuals and businesses that are affected by the COVID-19 pandemic. At the same time, the 10% limit ensures that these banks maintain a large reserve of unencumbered assets which, coupled with MAS’ other prudential rules, safeguards depositors’ interest.
Expansion of Collateral Accepted at the MAS USD Facility
6 MAS will also expand the range of collateral that banks in Singapore can use to access USD liquidity from the MAS USD Facility. The was established in March 2020 to support the stability of USD funding conditions in Singapore. Presently, banks in Singapore can borrow USD by pledging eligible SGD-denominated collateral.
7 Banks will be able to obtain USD liquidity by pledging a wider pool of cash and marketable securities from 28 September 2020, in line with what is accepted at the SGD Term Facility (see paragraph 3 above). The expansion of the eligible collateral pool at the MAS USD Facility will provide banks greater flexibility in managing their USD liquidity.
8 Ms Jacqueline Loh, MAS’ Deputy Managing Director (Markets and Development), said: “Since the beginning of the COVID-19 crisis, MAS has introduced three new liquidity facilities: the MAS USD Facility, the MAS SGD Facility for ESG Loans, and now the MAS SGD Term Facility. We have also significantly expanded the types of collateral accepted at these facilities. Taken together, these enhancements to MAS’ suite of liquidity facilities will fortify the resilience of the banking sector and financial markets in Singapore, and enable our banks to continue to support the needs of businesses and individuals here, and in the region through the crisis.”