MAS announced measures to enhance the access of banking system to Singapore dollar (SGD) and US dollar (USD) funding. These measures include establishment of the MAS SGD Term Facility, acceptance of residential property loans as collateral at the MAS SGD Term Facility, and expansion of collateral accepted at the MAS USD Facility. The new measures will strengthen banking sector resilience and support credit intermediation amid continued economic headwinds from the COVID-19 pandemic.
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. MAS has also significantly expanded the types of collateral accepted at these facilities. The following are the key highlights of the recently announced measures:
- 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. The new Facility will offer SGD funds in the 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. 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 September 28, 2020.
- 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. MAS will also raise the asset encumbrance limit imposed on locally incorporated banks under the Banking Act (Cap. 19). The asset encumbrance limit will be increased to 10% of a locally incorporated bank’s total assets, up 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.
- MAS will also expand the range of collateral that banks in Singapore can use to access USD liquidity from the MAS USD Facility. The MAS USD Facility was established in March 2020 to support the stability of USD funding conditions in Singapore. At present, banks in Singapore can 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, 2020, in line with what is accepted at the SGD Term Facility. The expansion of the eligible collateral pool at the MAS USD Facility will provide banks greater flexibility in managing their USD liquidity.
Keywords: Asia Pacific, Singapore, Banking, Liquidity Risk, COVID-19, Basel, Systemic Risk, D-SIBs, SGD Term Facility, MAS
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