Reply to Parliamentary question on banks financing Certificate of Entitlement (COE) premiums for car loans
Question No 154 Notice Paper No 20 of 2012
For Oral Answer
Date: For Parliament Sitting on 17 January 2012
Name and Constituency of Member of Parliament Q154: Mr Gan Thiam Poh, Member of Parliament, Pasir Ris-Punggol GRC
Question To ask the Prime Minister whether the Monetary Authority of Singapore (MAS) will consider disallowing banks to finance either the full or partial Certificate of Entitlement (COE) premiums as part of the measures to moderate the rise in COE premiums. Note: The above Question was originally directed to the Deputy Prime Minister and Minister for Finance (vide Q.*154 in Notice Paper No. 152 of 2011).
Response by Mr Tharman Sharmugaratnam, Deputy Prime Minister and Chairman, MAS
1 MAS has looked into this. We did in fact have financing limits on car loans by banks from 1995 until the beginning of 2003. They were however not very effective in influencing COE prices in one direction or the other, and in particular were not effective in stemming increases in COE prices.
2 One reason is that banks are not the only financing source. In fact, their share of total car loans today is somewhat lower than 10 years ago. Individuals can borrow from other entities such as car dealers and non-bank credit or leasing companies to get around rules that might be placed only on banks. They can also draw on their own savings to pay COE premiums.
3 The more fundamental factors that have a significant impact on COE premiums are factors such as the economic outlook, which shapes demand, and the supply of COEs which is itself influenced by car owners’ decisions on whether to de-register their cars.
4 In addition, in terms of financial stability that is MAS’ area of concern, car loans granted by financial institutions do not pose threats to financial stability. Such loans form a very small proportion of total loans in the financial system, and the proportion of car loans that are non-performing is low. Disallowing banks from fully or partly financing COEs, would therefore not be an appropriate tool to address rising COE premiums.
5 I can assure Mr Gan Thiam Poh, however, that MAS expects financial institutions to exercise prudence when extending loans for the purchase of cars, taking into account the credit worthiness of the borrower, his debt servicing ability, and the value of collateral.