MAS enhances access to liquidity facilities to strengthen resilience of banking sector

29 September 2020

The Monetary Authority of Singapore (“MAS”) has announced measures to enhance the banking system’s access to Singapore dollar (“SGD”) and US dollar (“USD”) funding. The new measures will strengthen banking sector resilience, promote greater stability in SGD and USD funding conditions, and support credit intermediation amid continued economic headwinds from the Covid-19 pandemic.

Establishment of SGD Term Facility

A new MAS SGD Term Facility (“SGD Term Facility”) will be launched in the week of 28 September 2020 to provide banks and finance companies an additional channel to borrow SGD funds at longer tenors and with more forms of collateral. While healthy liquidity buffers are maintained by banks and finance companies in Singapore, MAS states that this SGD Term Facility is being introduced to pre-emptively provide greater certainty of access to central bank liquidity, helping to contain any liquidity strains before they pose a serious challenge.

SGD funds in the one-month and three-month tenors are offered under the SGD Term Facility. This complements the existing overnight MAS Standing Facility. A wider range of collateral comprising cash and marketable securities in SGD and major currencies is accepted. This includes 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.

Pricing is set above prevailing market rates, in line with the SGD Term Facility’s objective to serve as a liquidity backstop.

SGD Term Facility to accept residential property loans as collateral

Singapore-incorporated domestic systemically important banks (“D-SIBs”) are able to pledge eligible residential property loans as collateral at the SGD Term Facility. MAS states that 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. This expansion of acceptable collateral will help D-SIBs conserve more liquid instruments and strengthen the effectiveness of the SGD Term Facility in providing liquidity support.

Asset encumbrance limit increased for locally-incorporated banks

The asset encumbrance limit imposed on locally-incorporated banks under the Banking Act will be increased to 10% of the total assets of a locally-incorporated bank, up from the previous limit of 4%. This increase gives such 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. At the same time, the 10% limit, along with MAS’ other prudential rules, safeguards depositors’ interest by ensuring that these banks maintain a large reserve of unencumbered assets.

Expansion of collateral accepted at USD Facility

MAS has also expanded the range of collateral that banks in Singapore can use to access USD liquidity from the MAS USD Facility (“USD Facility”). The USD Facility was established in March 2020 to support the stability of USD funding conditions in Singapore. Previously, banks in Singapore could only borrow USD by pledging eligible SGD-denominated collateral.

From 28 September 2020, banks will be able to obtain USD liquidity by pledging a wider pool of cash and marketable securities, in line with what is accepted at the SGD Term Facility. MAS states that the expansion of the eligible collateral pool at the USD Facility provides banks greater flexibility in managing their USD liquidity.

Reference materials

The following materials are available from the MAS website www.mas.gov.sg: