Parliamentary Question: Service Charges Imposed by Banks
Issues Raised in Parliament
ANSWER TO PARLIAMENTARY QUESTION ON: Service Charges Imposed by Banks
For Parliamentary Sitting on 17 Aug 1999
Question: To ask the Deputy Prime Minister (a) whether the imposition of service charges by banks on small savers will erode the value of savings and cause difficulty for lower income families to operate bank accounts; and (b) whether the new policy of the banks runs counter to the aim of a cashless society.
Answer: 1. Banks are commercial entities. Any services or products they provide have to make business sense. The fees they charge for these services and products are commercial decisions. MAS does not interfere, but it expects all financial institutions to conduct their business activities, including dealings with customers, in a transparent and professional manner, and in keeping with the guidelines set by their respective industry associations.
2. Banks, whether local or foreign, incur costs in servicing customers. They need to impose appropriate charges to recover these costs. Some foreign banks in Singapore have already been imposing charges on saving accounts for a number of years. These charges cover the costs of generating and mailing bank statements, operating teller counters, providing ATM services and so on.
3. Until recently, local banks have been absorbing the costs of providing saving accounts to customers. These costs had been partially offset by cross-subsidies from larger accounts and non-interest bearing current deposits. But the increasingly competitive banking environment is making it difficult for them to cross-subsidize certain groups of customers with others while maintaining overall competitiveness. Banks are also under pressure from customers to pay interest on current accounts and improve their level of services, all of which involve additional costs.
4. Some local banks have therefore decided to impose charges on these accounts. MAS has to allow them to do so, to compete on a level playing field with foreign banks. Banks will undoubtedly phase in the introduction of new charges, to maintain customer relationship and goodwill and allow them time to adapt. Banks will also have to actively find ways to service customers efficiently at the lowest cost possible to remain competitive.
5. There is considerable competition among banks in Singapore. This competition will ensure that charges are reasonable and affordable, although not free. Customers can choose freely which bank to use. A bank that imposes excessive charges or offer poor services will lose customers.
6. Customers also have a role in minimizing bank charges they incur. For example, customers who operate several small saving accounts concurrently may find it makes sense to consolidate these accounts into one. This will minimize the costs to banks of providing these accounts, and in turn the charges they impose.
7. Banks service charges do not run counter to our push towards a cashless society. A cashless society will hinge on a reliable, secure, efficient and extensive electronic payment system. This involves some costs. The challenge is to build a system that will be more efficient, convenient, and economical to use than cash.