MAS to Launch SGD Liquidity Facility, Enhance Access to USD Facility

The enhancements will fortify the resilience of Singapore’s banking sector and financial markets, and enable banks to continue to support the needs of businesses and individuals.

MAS (Monetary Authority of Singapore) has announced new measures to enhance the banking system’s access to stable SGD and USD funding, in a bid to promote resilience and support credit intermediation amid the Covid-19 pandemic and related economic headwinds.

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.

MAS says banks and finance companies in Singapore maintain healthy liquidity buffers, but that it is introducing a new the 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,” the regulator said.

Complementing the existing overnight MAS Standing Facility, new Facility will offer SGD funds in the 1-month and 3-month tenors, in exchange for a wider range of acceptable collateral. 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 will be accepted.

In addition, Singapore D-SIBs will be able to pledge eligible residential property loans as collateral at the MAS SGD Term Facility.

MAS will also raise the asset encumbrance limit imposed on locally-incorporated banks under the Banking Act. The asset encumbrance limit will be increased to 10 percent of a locally-incorporated bank’s total assets, up from the current limit of 4 percent.

“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,” MAS said. The higher limit also ensures that banks maintain a large reserve of unencumbered assets, which safeguards depositors’ interest, it added.

The new Facility will be launched in the week of 28 September 2020.

MAS will also expand the range of collateral that banks in Singapore can use to access USD liquidity from the MAS USD Facility, which 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. This will be expanded to include the same eligible collateral as specified under the new MAS SGD Term Facility, to provide banks greater flexibility in managing their USD liquidity.

“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,” said MAS Deputy Managing Director Jacqueline Loh. “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.”