DPM Lee's Reply to Parliamentary Question on Banking Ombudsman
Issues Raised in Parliament
ANSWER TO PARLIAMENTARY QUESTION ON:
For Parliament Sitting on 30 Jul 1998
To ask the Deputy Prime Minister whether the Government will consider the appointment of a Banking Ombudsman to make banks more accountable to their customers.
1. There is no need to appoint a Banking Ombudsman.
2. Banking is a competitive industry in Singa-pore. 153 banks operate here. Of these, 34 are full licensed banks, including 22 foreign-owned banks. They provide a full range of banking services for domestic customers. Another 13 restricted banks focus on wholesale banking services for corporate customers.
3. Customers are free to use any bank. If they are dissatisfied with the services of one, they can take their business to another bank. There are enough banks to choose from. It is therefore in the interest of banks to service their customers well.
4. The MAS requires all banks to uphold high standards of professional conduct, so as to preserve the integrity of the financial system as a whole. The Association of Banks has also issued a Code of Conduct for banks. This Code sets out standards of good banking practice and aims to maintain a fair relationship between banks and their customers and confidence in the professionalism of banks. Consumers who feel that they have been improperly treated by a bank can bring their complaints to the ABS. The ABS helps consumers resolve their grievances with banks. The system has worked well. Besides the ABS, consumers can also take their complaints to the Consumers' Association of Singapore.
SUPPLEMENTARY ANSWER ON WHETHER BANKS ARE CONTRACTING LOANS UNDULY
1. Banking is a business, not a social service. Banks have to act on sound commercial considerations. They cannot afford to extend loans which are imprudent, or fail to recover loans which are not performing. Otherwise they will undermine their own viability, lose money and run into serious trouble, as recent events in several Asian countries have vividly shown.
2. The Government and MAS cannot persuade banks to extend loans which in the banks' judgement are not viable. If Government were to intervene, it would be obliged to compensate the banks should the loans eventually prove irrecoverable. Then we would be no different from any of the other countries, whose governments have sought to influence lending decisions of banks, and brought their banking systems to the brink of collapse, with banks carrying a very high burden of non-performing loans, and requiring government resources to bail them out.
3. Neither has the MAS required banks to curtail lending or call on their customers to top-up on the value of collateral pledged on their loans. These are matters for the banks to decide on, based on the merits of each loan and good banking practice. However, banks should take a long view of their customers' prospects and needs, rather than over-reacting to the immediate mood of the economy. A bank that expands loans recklessly in good times and contracts credit unthinkingly in bad will soon acquire a bad reputation.
4. The ABS has recently advised its members not to take a short-term view of the viability of their customers' businesses, or to pull back loans that are being regularly serviced. Banks can be expected to be cautious in the current slowdown in the Singapore economy. But if all banks were to pull back loans precipitously, even to good borrowers, the quality of their loans as a whole will suffer. It is not in their interest to see this happen.
5. The evidence to date does not show that the banks are contracting credit excessively. The total volume of loans outstanding has shrunk slightly since the start of the year, but this is mostly because the demand for new loans by companies and individuals has fallen.[Loans outstanding in Jun 98 were 2% below the level in Dec 97, although they were 5% higher than the level in June 97.]
Banks have continued to accept new loans. Among the major banks, both foreign and local, the value of new loans accepted as percentage of loan applications was about 87% over the last three months [the ratio was 105% in June 98 - this is a statistical anomaly due to lag between applications and acceptances], which is higher than the level at the end of 1997 [60%] or in the middle of last year [64% in June 97], before the economic slowdown.
6. The overall volume of bank loans also remains high. The ratio of loans to deposits in the banking system averaged 108% over the last three months [107% in June 98]. This is below the peak of 115% at the end of last year, but remains above the levels seen at any time in the last 10 years.