• The proportion of vulnerable SMEs was 30 percentage points higher compared with the situation with large firms. 
• Overall, leverage risk among companies have worsened during the economic downturn induced by the Covid-19 pandemic
• Corporate debt-to-GDP levels have rose after remaining stable for the past four years 

SINGAPORE — Analysis of financial data from 65,000 firms in Singapore by the Monetary Authority of Singapore (MAS) has found that the proportion of small- and medium-sized enterprises (SME) that are vulnerable is about 30 percentage points higher compared with the situation for large firms. 

A higher proportion of firms in the accommodation, food and beverage, construction and retail sectors — sectors that have been hit harder by the Covid-19 pandemic — were also found to be in weaker cash positions and faced higher liquidity stresses. 

“Such firms, with their smaller size and limited access to capital markets, could thus be less able to weather the pandemic’s impact on revenue and face more severe strains that could impair their debt servicing ability and business operations,” MAS said in its annual financial stability review released on Tuesday (Dec 1). 

In comparison, companies listed on the Singapore Exchange (SGX) were found, based on MAS simulations, to have sufficient cash buffers to repay their short-term debt until the end of 2021, even without refinancing. 

Using a baseline scenario in its simulations, MAS found that 57 per cent of publicly listed firms were able to do that. 

Even if the central bank adjusted the parameters of the simulation to a more adverse scenario — for example, if there is a re-emergence of coronavirus infections in Singapore that caused economic activity to decline — 54 per cent of SGX-listed firms would have resilient cash buffers until the end of next year. 

Firms with more vulnerable buffers tend to be small with smaller annual revenues of less than S$100 million, MAS said. 

Overall, leverage risk among companies have worsened with the onset of the pandemic. 

With corporate debt on the rise and gross domestic output declining, the corporate debt as a percentage of gross domestic product (GDP) has increased to 163 per cent in 2020, after stabilising at around 150 per cent between 2015 and 2019, based on MAS data.

This is the highest corporate debt-to-GDP ratio since 2004.

Company earnings have fallen since 2011 but the drop was exacerbated this year. 

With lower profitability and increasing debt, MAS said that firms are at greater risk of not meeting their debt obligations from earnings. 

However, their debt servicing ability remains sufficient in the immediate term because companies have bolstered their cash holdings as a buffer to ease their short-term cash flows, resulting in healthier liquidity indicators. 

MAS added that Singapore firms have weathered the initial earnings shock from Covid-19 “relatively well”. 

While short-term debt is likely to be repaid as companies recover their revenues alongside improvements in the economy, some may face repayment difficulties if the economy recovers unevenly and earnings continue to remain weak. 

Debt sustainability in the medium to long term also poses increased risks, it said. 

“While the economy is expected to pick up next year, its uneven trajectory will impinge on corporate profits. Within the corporate sector, smaller firms that tend to be financially weaker and those in the domestically oriented and travel-related services impacted by Covid-19 remain vulnerable.”