DPM Lee's Reply to Parliamentary Question on Finance Companies
Issues Raised in Parliament
ANSWER TO PARLIAMENTARY QUESTION ON: Finance Companies
For Parliament Sitting on 04 Sep 98
Question: To ask the Deputy Prime Minister what steps the Government intends to take to encourage finance companies to merge so that these companies can actively participate in the growth of the financial sector in Singapore. As at 30 Jun 98, the total domestic non-performing loans (NPLs) of the 6 local banking groups amounted to $5.4b or 3.9% of their total domestic loans. This compares with $3.1b or 2.3% of total domestic loans in Dec 97. The number of such loans was 7,913, compared to 6,213 loans six months earlier.
1 The Finance Companies Act was revised in December 1994 to raise the minimum capital requirement for finance companies from $0.5m to $50m. The aim was to enable finance companies to have the resources to compete more effectively and increase public confidence in them. The finance companies have been given up to year 2003 to comply with the $50m minimum capital requirement.
2 Since the raising of the minimum capital requirement, 3 finance companies with small capital funds have ceased to operate. Of the 18 finance companies currently in operation, five have capital funds of less than $50m. If they fail to increase their capital funds by 2003, they would have to merge with larger financial institutions or cease operations.
3 MAS has, through frequent dialogue, encouraged the smaller independent finance companies to merge to meet competition and upgrade their operations. However, this is a commercial decision left to the finance companies. They will have to judge how best to meet the pressures of the marketplace, particularly as we gradually liberalise the domestic financial system to allow for greater competition.