In response to the global credit crunch, the Singapore government has decided to take on a significant share in the risks of bank lending.

The government will not take over the lending business in the belief that banks are the ones who have the direct relationships with their customers and a close understanding of their businesses, as well as the expertise in credit assessment across a wide range of businesses.

Instead, the government will share the risks for the first time in a new Special Risk-Sharing Initiative (SRI), which will have two components.

New bridging loan programme

The new programme will substantially enhance the original scheme introduced in November. This will cater to loans of up to $5 million (up from $500,000 currently). This should meet the working capital needs of most small to mid-sized firms, as well as some bigger ones.

The new BLP will apply to all new loans from 1 February 2009, and will include refinancing of existing loans when they fall due. The scheme will be in operation for one year in the first instance and cater to loans of up to four years maturity.

The new BLP will apply to all new loans from 1 February 2009, and will include refinancing of existing loans when they fall due. It will be in operation for one year, with a possible extension of one year if the situation warrants. The scheme will cater to loans of up to four years maturity.

Trade financing

The Government will step in to share the risk for trade financing, including 75% for trade loans. This is important for companies that already have orders, who need loans to fulfill their orders as well as insurance against the risk of their buyers defaulting on payments..

The Finance Minister will also extend the tax deduction on loss provisions made pursuant to Monetary Authority of Singapore (MAS) Notice 612 for banks, as well as other equivalent MAS notices for finance companies and merchant banks, for three Years of Assessment.

This will "encourage banks to continue making adequate loan impairment provisions and bolster their financial strength to underpin continued lending in the downturn."

The SRI and other enhancements the government is making could lead to $11 billion of loans this year, which includes $5.8 billion of government capital. The government expects the banks to take advantage of the schemes and play their part to ensure that viable companies get adequate funding to see them through the crisis.