Date: For Parliament Sitting on 28 February 2003 _________________________________________________________________________________________________
To ask the Deputy Prime Minister and Minister for Finance (a) what is the rationale for the recent liberalization of car financing; and (b) whether, with the rise in bankruptcies and unemployment, timing of the announcement is apt.
To ask the Deputy Prime Minister and Minister for Finance (a) what is the rationale for relaxing the parameters of vehicle loans for the purchase of automobiles; (b) whether there is a fundamental shift in the guiding principles of consumer loans; and (c) whether the same considerations will be applied to other consumer loans, such as housing loans.
1 Ms Low and Dr Wang have sought clarification on MAS' rationale for the lifting of the financing limits on car loans.
2 This decision is the consequence of a general shift in MAS' supervisory philosophy from prescriptive regulation to a risk-based approach, where MAS avoids micromanaging decisions by financial institutions and consumers, and applies supervisory limits only where necessary. From a risk perspective the financing limits on car loans were unnecessary, because such loans form a small proportion of total loans in the financial system1 and the proportion of car loans that are non-performing is low2. From a consumer perspective car loans are no different from other forms of hire purchase.
3 Dr Wang has asked whether this sets a precedent for the removal of other rules on consumer loans, such as housing loans. This is not the case. Housing loans are significant from a risk perspective, because they form a large proportion of total loans in the financial system. Unsecured loans and credit card facilities are smaller than housing loans, but MAS regulates them for prudential and social reasons. Many other regulators around the world are likewise concerned with the risks posed by rapid growth in property and consumer loans to the health of their financial systems. Hence MAS has no plans to remove these necessary safeguards.
4 Ms Low noted that there has been a rise in bankruptcies3 and unemployment rates, and questioned the appropriateness of the timing of this announcement. The lifting of the car financing limits does not in any way imply that Government is less concerned about Singaporeans facing financial difficulties as a result of excessive borrowing for consumption. However, the lifting of the limits does mean Singaporeans must take charge of their own finances when making car purchases, and determine the level of financing appropriate for their circumstances, bearing in mind their repayment ability over the longer term. At the same time financial institutions are expected to act prudently and decide on the quantum of financing and repayment period based on their assessment of the repayment ability of their borrowers.
1 Car loans form less than 7% of loans from financial institutions to non-banks.
2 Non-performing car loans form about 1% of total car loans.
3 The number of bankruptcy orders made in Singapore has risen by about one and a half times since 1998, from 2585 to 3588. However, to put things in perspective, the rise in the number of bankruptcies in Hong Kong has multiplied by ten times over the same period.