SINGAPORE firms are increasingly defaulting on payments - including bank loans - making them seem high-risk to lenders already tight on credit.
In one of the first signs of the global credit crunch hitting corporate Singapore, credit rating agency Dun and Bradstreet (Singapore) said more businesses are falling behind in making payments.
D&B chief executive K. S. Yun said that, apart from construction, more local businesses in other sectors will fall into the high-risk pocket this year and next.
Based on monthly payment data collected from an average of 4,000 to 5,000 firms based here, D&B says 22.2 per cent of them have a high risk of not meeting payments this year, up from 19.77 per cent last year.
And with economists and the Government both lowering their growth forecasts for this year, with official estimates of 'around 3 per cent', D&B says next year may see the proportion of high-risk firms rise to almost 30 per cent.
The riskiest industry appears to be retail, where D&B predicts that more than half of retail firms here may not meet their payments come 2009.
However, when asked whether the latest data reflects a worsening of credit conditions here, Mr Yun said it was possible, but there are other factors that lenders would still consider.
These include the borrower's financial strength, track record, cash flow and relationship with the bank, purpose of loan and market conditions.
But Mr Yun said local financial institutions and banks, which use D&B's ratings as part of their evaluation process for loans, have shown a significant decrease in risk appetite compared to last year.
'During the boom time, between 2006 and 2007, many banks went all out to offer loans, even to SMEs (small and medium enterprises),' said Mr Yun.
'Many aggressively expanded their SME banking teams and some even introduced collateral-free term loans.'
But times have changed since the shake-up in the global financial market.
'Banks are definitely more risk averse right now,' he said.
'And even when they do lend, they either request more collateral or are concentrating more on asset-based financing.'
Banks and analysts The Straits Times spoke to confirmed that borrowing costs for companies have gone up across the board in recent weeks, as lenders become more cautious about lending amid a spike in overnight rates.
'With the current volatility in the global economy, we have seen tighter market liquidity,' said Mr Samuel Tsien, global head of OCBC's global corporate bank.
Citibank's head of corporate banking, Mr Silas Lee, said 'mid-tier names' could expect to pay 0.5 to 1 percentage point more in borrowing costs for short-term working capital loans.
Top-tier investment grade names are also not spared. They are likely to see an increase in the region of 0.1 to 0.25 percentage point, he added.
Mr Lee said that for longer tenor committed financing, credit spreads have on average increased by more than 1 percentage point.
A UOB spokesman said that borrowing costs have 'gone up across all risk grades'.
'This is reflective of the global credit crunch and the disruption in the interbank money market,' said UOB, adding that the higher costs will affect 'all borrowers, industrial sectors and asset classes', and apply to 'both short-term and long-term loans'.
Despite the widening credit spreads, companies are still trying to secure financing, given that liquidity is their primary consideration, said Citibank's Mr Lee.
Some banks remain committed to their customers, saying they are ready to review their requirements and provide the necessary solutions.
'We have helped a significant number of companies ride through economic cycles over the past years and will continue to do so,' said OCBC's Mr Tsien.
