ACCORDING to the latest statistics from the Monetary Authority of Singapore, domestic bank lending fell $1 billion, or 0.4 per cent, to $272.1 billion in December last year compared to last November, following a 1 per cent decline last November from last October.

The decline was exacerbated by reduced lending to businesses, which fell $5.4 billion in two consecutive months, or 3.3 per cent, compared to a 1.4 per cent increase in consumer lending. Being commercial enterprises with responsibilities to shareholders, depositors and the Government, banks cannot be good Samaritans. Also, today's banks do not rely solely on lending for their income.

It remains to be seen how effective the pro-business measures in this year's Budget will be, especially the Special Risk-Sharing Initiative (SRI), which is intended to stimulate lending by banks to companies. The ball is now in the banks' court, but how will the effectiveness of the SRI be assessed?

Certain banks may attempt to fulfil their 'national-service' obligations by proactively handing SRI loans to financially- stronger customers while shunning smaller companies. Many companies might have turned to banks for loans, only to be refused during this credit crunch.

To remedy this, industry associations could act as a conduit between companies and prospective lenders, and also provide information on the success rate of loan applications and banks' willingness to lend. Perhaps the Government could consider setting up an interim agency to issue loans to local companies.

The agency will administer the loans, but the Government would have the final say on which companies would be worthy recipients.

The cost of setting up and running the agency would be no more than that of the SRI.

Mr Ee Teck Siew

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