More SMEs at risk of default as interest rate shoots through the roof

SME loans make up 12.8% of system loans.

More small businesses are now at risk of default as the SIBOR continues to head north. Commercial and residential loans are usually pegged to this benchmark, and Maybank Kim Eng warns that smaller enterprises are more susceptible to default than larger corporate loans.

“This is because SME businesses are typically less diversified with smaller balance sheets to cope with economic challenges,” stated the report.

Maybank Kim Eng cautioned that SMEs will be at further risk should interest rates rise by 3 percentage points in one go.

“On a positive note, banks’ proportions of unsecured SME loans have shrunk in recent years (Figure 12). Of the three Singapore banks, UOB is the largest SME lender, followed by OCBC and DBS,” the report noted.