The Monetary Authority of Singapore (MAS) has introduced measures to enhance the banking system’s access to Singapore dollar (SGD) and US dollar (USD) funding on September 3.

The new measures are said to strengthen banking sector resilience, promote more stable SGD and USD funding conditions, and support credit intermediation amid continued economic uncertainty from the Covid-19 pandemic.

A new MAS SGD term facility will be introduced to allow banks and finance companies to borrow SGD funds at longer tenors with more forms of collateral.

The facility will be launched in the week of September 28.

MAS says it is introducing this new facility pre-emptively to both provide greater access to central bank liquidity and help contain liquidity strains before they pose a serious challenge.

The new facility will offer SGD funds in the one- and three-month tenors, which complement the existing overnight MAS Standing Facility.

A wider range of collateral comprising cash and marketable securities in SGD and major currencies 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 new facility will also now allow domestic systemically important banks (D-SIBs) incorporated in Singapore to pledge eligible residential property loans as collateral.

The practice is only available to D-SIBs and is in line with the practices of major central banks, according to MAS.

MAS says the expansion of acceptable collateral will help these banks conserve their more liquid instruments. It will also strengthen the effectiveness of the facility in providing liquidity support.

The Singapore central bank will also raise the asset encumbrance limit imposed on locally-incorporated banks under the Banking Act to 10% 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,” says MAS.

“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,” it adds.

MAS to expand range of collateral to access USD liquidity

In the same statement, MAS says it will also expand the range of collateral that banks in Singapore can use to access USD liquidity from the MAS USD Facility.

Established in March to support the stability of USD funding conditions in Singapore, banks in Singapore can presently borrow USD by pledging eligible SGD-denominated collateral.

Banks will be able to obtain USD liquidity by pledging a wider pool of cash and marketable securities from September 28, in line with what is accepted at the SGD Term Facility.

“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,” says Jacqueline Loh, MAS’ Deputy Managing Director (Markets and Development).

“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,” Loh adds.

On the enhancements, UOB's group chief risk officer, Chan Kok Seong says, “UOB welcomes the Monetary Authority of Singapore’s enhancements to the liquidity facilities available to financial institutions. This will facilitate the continued smooth access to funding as financial institutions help consumers and companies to overcome their difficulties and support Singapore’s road to economic recovery.”

“The new SGD Term Facility is a welcome addition to the monetary toolkit and highlights MAS’s progressive and forward-looking approach in its effort to maintain a well-functioning financial market in Singapore. The announcement is likely to be viewed favourably by market participants," says Daniel Koh, global head of treasury markets at Standard Chartered Bank.