MAS introduces new SGD funding facility for banks, boosts access to liquidity

THE Monetary Authority of Singapore (MAS) announced on Thursday that it will be taking steps to boost Singapore dollar (SGD) and US dollar (USD) funding for banks, in efforts to promote more stable funding conditions and to strengthen the sector's resilience.

Among the measures is a new MAS SGD Term Facility which 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.

MAS said that it is introducing this facility "pre-emptively to provide greater certainty of access to central bank liquidity", which will help to contain any liquidity strains "before they pose a serious challenge".

The new facility will offer SGD funds in one-month and three-month tenors, complementing the existing overnight MAS Standing Facility. A wider range of collateral comprising cash and marketable securities in SGD and major currencies will be accepted.

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 G-10 (Group of Ten) currencies.

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 Sept 28, 2020.

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In addition, domestic systemically important banks (D-SIBs) 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, said MAS.

"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," it added.

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 at September 2020, there are seven D-SIBs in Singapore - DBS Bank, OCBC, UOB, Citibank, Maybank, Standard Chartered Bank and HSBC.

Singapore's central bank will also raise the asset encumbrance limit imposed on locally-incorporated banks under the Banking Act to 10 per cent of a bank's total assets, up from the current limit of 4 per cent.

MAS said that 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.

It added that the 10 per cent limit ensures that these banks maintain a large reserve of unencumbered assets which, coupled with MAS's other prudential rules, safeguards depositors' interest.

Alongside this move, MAS will also expand the range of collateral that banks in Singapore can use to access USD liquidity from the MAS USD Facility. Banks will be able to obtain USD liquidity by pledging a wider pool of cash and marketable securities from Sept 28, 2020, in line with what is accepted at the SGD Term Facility.

The MAS USD Facility 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.

The expansion of the eligible collateral pool at the MAS USD Facility will provide banks greater flexibility in managing their USD liquidity, said MAS.

Jacqueline Loh, MAS's deputy managing director (markets and development), said that these enhancements to MAS's 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".