BANKING BILL

Order for Second Reading read.

4.17 p.m.

The Minister for Finance (Mr Hon Sui Sen): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The law regulating banking in Singapore at present is substantially the Malayan Banking Ordinance of 1958 which was modified in April 1967 only to empower the Singapore Commissioner of Banking to administer this law. At that time, a draft Banking Bill had been prepared by the International Monetary Fund for Singapore but it was considered that, in view of the impending change in the monetary system caused by the redemption of the Malayan dollar and the issue of the Singapore dollar, there would be some advantage in avoiding unnecessary changes in other parts of the system and, therefore, in maintaining the status quo of banking in Singapore vis-a-vis Malaysia. Now the redemption of currency issued by the Board of Commissioners of Currency, Malaya and British Borneo, has all but been completed, and the Singapore dollar is firmly and fully established. Moreover, the banking legislation in Malaysia has also been amended. It is therefore appropriate that we should now enact our own legislation to include modifications which would overcome the shortcomings of the present legislation.

The Banking Bill now before Members incorporates the basic features of the current Banking Ordinance, but it also introduces a number of new provisions, the most important of which are designed to ensure better and sounder banking practices and to better safeguard depositors' interests. They include restrictions on the amount a bank can grant to a single customer, a prohibition from engaging in trade, restrictions on the extent a bank can acquire equity capital and immovable property, and on the amount of loans extended for the purpose of purchasing and improving immovable properties.

More comprehensive definitions appear for "bank" and "banking business". A new concept of "capital funds" has been introduced so that a healthy relationship between a bank's lending power and its net worth in Singapore is maintained. "Capital funds" mean, for a bank whose head office is situated in Singapore, its paid-up capital and reserves and, for a bank whose head office is outside Singapore, the net head office funds and such other liabilities as the Commissioner may decide.

As in the current legislation, the operation of a bank in Singapore requires a licence. The minimum capital requirement has been raised from $2 million to $3 million. In the case of a foreign bank, this has been raised from $5 million to $6 million with a requirement that the net head office funds in Singapore should be at least $3 million. At present foreign banks are required to hold $2 million approved assets locally. It is not considered that these requirements will cause any difficulty to banks already licensed, but a transitional period of two years, which can be further extended by approval of the Minister, is being provided for compliance with the requirements. It is further proposed to require banks and their branches to pay licence fees annually.

As at present, certain statistical statements will be required to be furnished to the Commissioner and the Chief Statistician. Every bank shall also send to the Commissioner particulars of all advances, loans and credit facilities granted to any of its Directors, any firm in which any of its Directors is a partner, or to any related corporation, etc. The Commissioner may prohibit such further grants of advances, loans or credit facilities or impose restrictions on the grants unless he is satisfied that these would not be against the interests of the depositors of the bank.

Part V of the Banking Bill spells out restrictions on certain types of business and prohibitions on others. These prohibiting clauses are new and are designed to safeguard depositors' interests. They have been recommended by the International Monetary Fund, and are found in the banking laws of a number of other countries. Briefly, they are that no bank will be allowed to grant to any single customer any credit facility which is at any time more than 60 per cent of its capital funds, though this can be increased to 100 per cent with the approval of the Commissioner. Again, no bank shall grant any advance or credit facility against the security of its own shares. Unsecured facilities to any Director, any firm in which any of its Directors is a partner, or to any related corporation, etc., would be limited to $5,000. Unsecured facilities to its employees would also be limited, nor will a bank be allowed to acquire or hold equity capital or other undertakings exceeding in the aggregate 40 per cent of its capital funds. Provision is made, however, for the Commissioner to approve any shareholding in any corporation set up for the purpose of promoting development in Singapore. To prevent speculation on property, a provision has been made that, apart from the properties used as banking offices and for housing its employees, no bank shall be allowed to purchase or acquire immovable properties exceeding 40 per cent of its capital funds. Loans extended for the purpose of purchasing or improving immovable properties are limited to 30 per cent of its local deposits and, with the approval of the Commissioner, up to 60 per cent.

No bank will be allowed to do trading on its own account. Whilst this provision has not been specifically spelt out in the present legislation, banks in Singapore do not in fact undertake trading on their own account and it is envisaged that no difficulty will be encountered with this provision which is common to most other banking laws.

There are transitional provisions to enable banks which have, before the date of coming into force of the legislation, entered into transactions prohibited under this law, to liquidate such transactions or bring them within the law. In order to allow some banks time to adjust to the requirements of the new Banking Act, I am introducing an amendment to the Bill which will enable the Commissioner, if he is satisfied that such time is required for adjustments, to grant a grace period not exceeding two years to any particular bank from the provisions of sections 25,27 and 28 of this Bill (i.e., restrictions covering loans to a single borrower, equity investment and immovable property).

As in the current legislation, there will be provisions to require banks to keep minimum liquid assets in Singapore and to maintain statutory reserves with the Accountant-General. There is also provision to allow control over banks on the regulation of interest rates, discount, commission, and other charges of banks. The Commissioner may also make recommendations on credit policy and, if these are not complied with, the Minister may impose such directions as may be necessary for their implementation. Inspection of books, accounts and transactions of a bank under conditions of secrecy is also provided for. The Minister may direct the Commissioner to make an investigation of any books, accounts, and transactions of any bank if he believes the bank is carrying on unsound business.

The Commissioner and the Minister are provided with the necessary powers to take over the control of a bank if it is unable to meet its obligations or is conducting its business to the detriment of its depositors. The duration of control is laid down and within this period the bank is required to co-operate with the Commissioner. The Commissioner, with the approval of the Minister, may also prohibit any bank from carrying on banking business if he considers it in the interests of the depositors of the bank.

The Bill introduces the concept of numbered accounts, that is, accounts which are identifiable only by number or code word. No bank shall operate numbered accounts except with the approval of the Minister who may attach conditions, qualifications and limitations. The owners of numbered accounts shall only be known to senior officers of the bank. Provisions are made for absolute secrecy on the part of bank officials and no information concerning the identity of the owner of a numbered account shall, be given, unless the account holder permits it or he is declared a bankrupt or a suit arises between him and the bank or when the account holder is required to do so by order of the High Court made for special cause in any civil or criminal proceedings.

A new provision has been added prohibiting disclosure of information relating to the affairs of the bank's customers to any person or body of persons who are not resident in Singapore or to any foreign Government or organisations, unless the customer permits it or he is declared a bankrupt or the information is for the purpose of assessing the credit-worthiness of the customer.

The Bill also provides for the appointment of approved auditors and their duties, the establishment of a Clearing House, bank holidays, priority of deposit liabilities, disqualification of Directors and employees of banks, offences by Directors, and power to compound offences.

It is also provided that the operation of the Companies Act, 1967, shall not be affected by this legislation though, in case of conflict, this legislation will prevail. The legislation will also not apply to the Post Office Savings Bank, a registered co-operative society, a licensed pawn-broker, or a licensed finance company.

Mr Speaker, Sir, I should like, in conclusion of my explanatory remarks, to say that this Banking Bill has received consideration over a considerable period of time, that consultations have been held during its preparation with the Association of Banks and others interested regarding its provisions, but responsibility for the Bill in its final form of course remains with my Ministry. Since its publication, a number of representations from banks have been received and I can assure them that every consideration has been given to their representations and that it is not my purpose to administer the law in any way which will curtail the effectiveness of the banking system. While the Bill would provide powers for the Commissioner to have tighter control over banks and their activities, the modernisation of the banking law should cut down unsound practices and so work to the general interests of depositors, the banking system and the public at large.

Sir, I beg to move.

Question proposed.

4.30 p.m.

Mr Teong Eng Siong: (In Mandarin): Mr Speaker, Sir, I will ask only one or two questions. I have been given to understand that the control of the banking business in Singapore has been very strict. After the passage of this Banking Bill, can the Minister say whether new licences will be issued to `the banks in Singapore? If so, what conditions should be complied with?

Mr Hon Sui Sen: Mr Speaker. Sir, under the law the Minister is empowered to issue new licences. The practice over the last few years has been not to issue any further licences because obviously we have too many banks in Singapore. If there are very good and sound reasons why more banks should be licensed - if, for example, in certain branches of banking there is any inadequacy - then obviously such applications will be entertained.

I do not consider that the present minimum requirement of $3 million is a very adequate qualification for banks in Singapore. It will be imposed on the present banks and there should be no difficulty for most of them to meet this capital requirement. But I do not consider that any new application with just $3 million will be an adequate reason for a new licence to be issued.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Hon Sui Sen].

Bill considered in Committee.

[Mr Speaker in the Chair]

4.35 p.m.

Clause 1 ordered to stand part of the Bill.

Clause 2 -

Mr Hon Sui Sen: Mr Speaker, Sir, I beg to move,

In page 2, after line 20, to insert -

""published reserves" means reserves which appear in the accounts of the bank but does not include any reserves which are represented by the writing down of the value of assets or by provision for the depreciation of fixed assets or which are maintained for any specific purposes;".

The purpose of this amendment is to insert in its proper place among the definitions the definition of "published reserves". In the present Bill, before this amendment, the definition appears in clause 33.

Amendment agreed to.

Clause 2, as amended, ordered to stand part of the Bill.

Clauses 3 to 12 inclusive ordered to stand part of the Bill.

Clause 13 -

Mr Hon Sui Sen: Mr Speaker, Sir, I beg to move,

In page 7, line 13, after "annual", to insert "licence".

This is just a matter of clarification. It is to make it quite clear that it is licence fees with which we are concerned here.

Amendment agreed to.

Clause 13, as amended, ordered to stand part of the Bill.

Clauses 14 to 28 inclusive ordered to stand part of the Bill.

Clause 29 -

Mr Hon Sui Sen: Mr Speaker, Sir, I beg to move,

In page 19, line 5, to leave out "dead" and insert "deed".

This is to correct a typographical error.

Amendment agreed to.

Clause 29, as amended, ordered to stand part of the Bill.

Clause 30 -

Mr Hon Sui Sen: Mr Speaker, Sir, I beg to move,

In page 19, line 28, to leave out "Any" and insert "Subject to this Act any".

The purpose of this amendment is to clarify that this particular clause will be subject to clause 33 which I shall introduce later.

Amendment agreed to.

Clause 30, as amended, ordered to stand part of the Bill.

Clauses 31 and 32 ordered to stand part of the Bill.

Clause 33 -

Question proposed, "That clause 33 stand part of the Bill."

Mr Hon Sui Sen: Mr Speaker, Sir, I have indicated that in view of the definition of "published reserves" which has now been inserted in its proper place in clause 2, the intention is to delete this clause.

Question put, and negatived.

Clause 33 accordingly disagreed to.

New Clause 33 - "Relief from 33.-(1) Any bank whose opposed head limitations office is situated outside Singapore by sections may apply in writing to the Commissioner 25, 27, 28 for an order relieving that bank from the restrictions or limitations imposed by sections 25, 27 and 28 of this Act in relation to any transactions referred to in those sections and the Commissioner may make such order subject to such conditions as he thinks fit. (2) The Commissioner shall make an order under subsection (1) of this section only if he is satisfied that the making of such order is in the interests of the creditors and depositors of the bank. (3) An order made by the Commissioner under subsection (1) of this section shall be effective for such period as the Commissioner may decide and shall cease to have effect on such date as may be specified in the order except that no order may be made which is expressed to have effect for a period longer than two years from the date of the coming into operation of this Act. (4) The Commissioner may make an order under subsection (1) of this section in respect of transactions entered, into by the bank before or after the date of the coming into operation of this Act.". - [Mr Hon Sui Sen]

Brought up, and read the First time.

Mr Hon Sui Sen: Mr Speaker, Sir, I beg to move, "That the clause be read a. Second time."

Mr Speaker, Sir, the purpose of this clause is to provide relaxation from the provisions of clauses 25, 27 and 28' which are based upon the capital funds concept; that is to bring in restrictions related to the head office funds rather than the paid-up capital and reserves, a concept more common in other legislation elsewhere. In my view, there should be no difficulty in foreign banks transferring, if necessary, some of their-working capital funds as additional funds to Singapore in order to continue their business in Singapore in conformity with the provisions of the clauses I have mentioned.

However, I have received representations from the Association of Banks and the International Chamber of Commerce on behalf of some of their members that these clauses are unduly restrictive in the carrying on of their banking business. One answer to this, may well be that the local banks will welcome the opportunity to take on the business which they are unwilling to do by bringing in additional funds. It can be contended by the local banks that the amendment I have introduced can lead to unfair discrimination against them because foreign banks can, on the face of it, expand their business to the detriment of the business of the local banks.

Nevertheless, because of the fragile climate in which I am told the industrial and commercial growth is nurtured, I have by this amendment allowed for relief to be considered on specific application by any bank whose head office is outside Singapore, but only for the first two years. The bank must, however, show that any such relaxation is, really necessary and will not be to the detriment of depositors.

Question put, and agreed to.

Clause read a Second time and added to the Bill.

Clause 34 to 72 inclusive ordered to stand part of the Bill.

Schedules 1 to 4 inclusive ordered to stand part of the Bill.

Bill reported with amendments; read a Third time and passed.