FINANCE COMPANIES (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Finance Companies Act was last amended in November 1984. Since then, the operating environment for finance companies has changed significantly. This has made it necessary to review the Act to ensure its continued effectiveness in fostering prudent operations of finance companies and sound supervision of the industry.

Finance companies now face intense competition from banks in the retail financing business. Banks are encroaching into activities traditionally the domain of finance companies, such as the financing and purchase of cars and houses. Some finance companies have responded by merging in order to compete. As a result, the number of finance companies fell from 34 in 1984 to 23 today. Between 1984 and September 1994, total assets of the industry expanded by 142% from $7.2 billion to $17.4 billion while total pre-tax profits rose by 117% from $135 million to $293 million between 1984 and 1993.

In the past decade, many financial institutions suffered large loan losses as a result of imprudent lending to the property and stock markets. In some cases, governments have had to spend massive sums of taxpayers' money to rescue insolvent financial institutions. Regulators are now much more conscious of the need for financial institutions to be adequately capitalised to provide for unexpected losses. These experiences also underscored the need to ensure that regulations for the supervision of financial institutions are continually updated to keep pace with market developments and the scale of operations of these financial institutions.

The proposed amendments to the Finance Companies Act are needed to update regulations so that they can continue to be effective in preserving the health of the industry. Prudential requirements in the Act would be brought in line with the amendments to the Banking Act in 1993, and with developments in international supervision standards.

The Bill seeks to enhance prudential standards for finance companies, introduce procedures for investigation of drug money laundering offences and improve MAS' supervision of finance companies. The Bill also liberalises a number of regulations to provide greater scope and flexibility for the operation of finance companies. MAS has discussed the proposed amendments with the Finance Houses Association of Singapore whose views have been taken into consideration in the drafting of the Bill.

I will now touch on the main provisions of the Bill, which will:

(a) increase capital requirements for finance companies in order to strengthen their financial resources;

(b) require finance companies to transfer part of their profits to a reserve fund, in line with a similar provision in the Banking Act;

(c) extend the existing prohibition on finance companies from dealing in gold and foreign currencies to investments in other precious metals and foreign currency denominated securities;

(d) reduce the single customer loan limit from 30% to 25% of capital funds of finance companies;

(e) require directors of finance companies to indemnify their companies against losses arising from unsecured loans granted to private and non-listed public companies in which the directors of the finance companies control or have an interest;

(f) facilitate the investigation of suspected drug money laundering activities pursuant to the Drug Trafficking (Confiscation of Benefits) Act;

(g) give legal force to existing requirements on provisions for bad and doubtful debts, publication of audited accounts, granting of loans and advances to persons related to a finance company or its directors and disclosure of interests by directors of a finance company in loans granted by the finance company;

(h) liberalise the scope of activities for finance companies with capital funds of at least $100 million by allowing them to deal in foreign exchange, foreign currency denominated investments and precious metals up to 10% of their capital funds;

(i) exempt finance companies' loans to Government and banks from the single customer loan limit and the substantial loans limit; and

(j) exempt finance companies' purchases of Singapore Government securities and statutory board bonds from the unsecured loans limit.

I will now explain the main provisions of the Bill in greater detail.

Clause 5 of the Bill amends section 7 of the Act to require finance companies to have minimum capital funds of $50 million. The minimum paid-up capital requirement for finance companies has remained unchanged at only $0.5 million since 1968.

In view of the strong growth in finance companies' operations over the past 25 years, the minimum capital requirement of $0.5 million is now grossly inadequate for their operations and to protect depositors' interests. It is proposed that existing finance companies be required to have a minimum capital fund of $50 million. As at the end of November 1994, 13 of the 23 finance companies have capital funds above $50 million. Two of the 10 companies with capital funds below $50 million are bank-owned and should have no difficulty in raising funds to meet the new capital standard. The remaining eight companies with capital funds below $50 million and are not affiliated with any bank would be given a relatively long period of eight years to build up their capital to the required level. Alternatively, they can meet the new capital requirement through mergers. New applicants for finance company licences would be required to have minimum paid-up capital of $50 million.

Presently, finance companies are not required to observe any minimum capital adequacy ratio. As recommended by the Bank for International Settlements (BIS), the capital adequacy ratio is a measure of the adequacy of capital funds of financial institutions relative to the size and risk of their loan and investment portfolios. Assets which carry a higher level of credit risk need to be supported by a higher amount of capital. To ensure that finance companies' capital resources are adequate in relation to the scale and risks of their operations and to enable them to better absorb unexpected losses, the Bill proposes to require finance companies to maintain a minimum capital adequacy ratio of 12%, which is the same as that prescribed for banks. Finance companies would be given one year to comply with this requirement. Most finance companies currently have capital adequacy ratios exceeding the 12% standard.

Clause 6 deals with the transfer of profits to the reserve fund. As the minimum paid-up capital of finance companies would ultimately be raised from $0.5 million to $50 million, the existing formula for the transfer of profits to the reserve fund would become obsolete. Under the new provisions, all finance companies would be required to transfer at least 50% of after-tax profits to the reserve fund if the reserve fund is less than 50% of paid-up capital. If the reserve fund ismore than 50% but less than 100% of paid-up capital, the sum to be transferred should not be less than 25% of after-tax profits. If the reserve fund is 100% or more of the paid-up capital, the amount to be transferred should not be less than 5% of after-tax profits. This is in line with the requirement for banks.

Finance companies currently cannot deal in gold or foreign exchange. Such transactions carry higher risks and finance companies which are generally less well capitalised may not have the expertise and resources to conduct such activities. The Bill proposes to extend the prohibition on dealings in gold and foreign exchange to cover investments in other precious metals, and bonds and shares denominated in foreign currencies.

The Bill also proposes to reduce the single customer lending limit. Currently, a finance company is not allowed to grant credit facilities to any single borrower or any group of connected borrowers in excess of 30% of its capital funds. The Bill proposes to reduce the limit to 25% to bring it in line with the Banking Act and the recommendation of the BIS. Finance companies would be given two years to bring existing credit facilities within the new limit. The lower limit should not adversely affect finance companies' ability to extend credit facilities to their customers as the finance companies' capital funds have increased significantly from $1.1 billion at the end of 1984 to $2.1 billion at the end of September 1994.

Under existing provisions, all directors of a finance company are jointly and severally liable for losses incurred by the company arising from the default of unsecured loans to any of its directors or any firm in which any director of the company has an interest or any corporation that is related to the finance company. The definition of "firm", however, covers only sole proprietorships and partnerships but not companies. Directors of a finance company are therefore not liable for losses arising from unsecured loans granted by the finance company to any company that a director has an interest. To close this loophole, the Bill proposes to extend the liability of such directors to include loans granted to private and non-listed public companies in which any director owns more than 50% of the share capital or controls the composition of the board. Public listed companies and their subsidiaries are excluded as they are subject to the scrutiny of the investing public and the Stock Exchange of Singapore.

The next group of amendments in clause 15 sets out the provisions for requiring finance companies to assist in the investigation of drug money laundering offences. The Drug Trafficking (Confiscation of Benefits) Act allows the investigation, tracing, freezing and seizure of proceeds from drug trafficking and provides legal assistance to foreign enforcement agencies on fulfilment of certain conditions. The new provisions would facilitate applications for production orders and granting of mutual assistance to foreign government agencies where a customer of a finance company is involved in the laundering of drug proceeds. To ensure that assistance is provided only for genuine drug trafficking investigations, a prima facie case of drug trafficking has to be established. Such assistance would be provided only if it is not contrary to the national interests of Singapore.

Finance companies are required to maintain minimum reserves with the Monetary Authority of Singapore (MAS) of 6% of their liabilities base. As in the Banking Act, the amendment to section 31 at clause 13 proposes to empower MAS to direct a finance company to make good any deficiency in such reserves within a specified period.

The Bill also proposes to put into legal effect certain existing requirements which are currently imposed administratively on finance companies and to bring them in line with the requirements of the Banking Act. These provisions appearing in clauses 6 to 8 would require finance companies to:-

a) make adequate provisions for bad and doubtful debts before declaring any profit or loss;

b) obtain approval from MAS before the publication of interim and annual accounts in order for MAS to ensure that all the provisions of the Act have been complied with before accounts are finalised;

c) submit information on loans and credit facilities granted to the finance companies' directors, employees and related borrowers to MAS on a monthly basis; and

d) require directors of finance companies to disclose to their Board their personal interest in credit facilities provided by the finance company to ensure that the Board is aware of any possible conflict of interests.

The Bill provides, at clause 12, for MAS to issue notices to finance companies relating to their operations and the code of conduct governing the manner in which a finance company deals with its customers, for example, informing customers of effective interest rates and disclosing to customers of the risks of financial transactions.

While the Bill seeks to tighten prudential requirements of finance companies to enhance the soundness of the industry, it also proposes amendments to liberalise existing regulations to broaden the scope and activities of finance companies without compromising the standard of supervision.

Firstly, the Bill provides better capitalised finance companies greater scope to expand into new businesses which may entail higher risks and therefore require higher level of capital. The Bill proposes to allow finance companies with capital funds of $100 million or more to apply to MAS for exemption from the prohibition on dealing in precious metals, foreign currency denominated securities and foreign exchange. The aggregate amount of foreign currency exposure of a finance company which is approved by MAS to conduct such foreign currency activity, however, cannot exceed 10% of its capital funds in order to ensure that the finance company does not become over exposed to foreign exchange risk.

Secondly, the Bill exempts finance companies' transactions with the Government and banks from the 25% single customer loan limit and the substantial loans limit (that is, loans which exceed 15% of the finance company's capital funds).

Thirdly, the Bill provides finance companies more flexibility to invest in high quality financial instruments. The Bill proposes to exclude purchases of Government securities and bonds issued by statutory corporations in Singapore from the unsecured loans limit as such securities are of low credit risk. This unsecured loans limit prohibits a finance company from granting unsecured loans of more than $5,000 to any person and the aggregate amount of such unsecured loans cannot exceed 10% of a finance company's capital funds.

The other housekeeping amendments, namely, those pertaining to the imposition of penalties for breaches of regulations issued by MAS, and the definition of terms, do not warrant any special attention in addition to what has been stated in reference to them in the Explanatory Statement.

Sir, I beg to move.

Question proposed. 2.00 pm

Dr Ow Chin Hock (Leng Kee): Mr Speaker, Sir, the Finance Companies (Amendment) Bill is a logical extension of the Banking (Amendment) Bill that this House passed on 31st August 1993. Indeed, the two Amendment Bills share some common objectives. First, both Bills seek to tighten the admission criteria and financial and prudential requirements for financial institutions by raising the minimum capital sum, stipulating a capital adequacy ratio, and controlling certain credit facilities, such as single customer limit and unsecured loans to related parties. Second, both Bills make new provisions to facilitate the investigations of drug trafficking offences when a customer of a financial institution is involved in money laundering. These provisions in both Bills are complementary to those provisions in the Drug Trafficking (Confiscation of Benefits) Act.

The Finance Companies Act was last amended in 1984, one year after the Overseas Union Finance Ltd was asked to wind up. Sir, I have also obtained some data on the growth of finance companies in Singapore. The Yearbook of Statistics and Economic Survey show that during 1983-1993, finance companies' loans and advances increased from $5.3 billion to $11.5 billion, a growth of 117% over the last 10 years. During the same period, finance companies' deposits increased from $4.6 billion to $10.6 billion, a growth of 130%. However, their capital funds only increased from $1.04 billion to $1.85 billion, a growth of 77.8% during the same period. In 1993, credit expansion of finance companies grew by 20%, double the 1992 rate. This was mainly due to high demand for car loans, housing loans and personal loans to finance share investments. In 1992-1993, the finance companies' share of non-bank loans in the domestic financial system reached 12%. However, it should be noted that, for three consecutive years since 1991, the growth in finance companies' deposits was slower than the growth of their loans. Hence, apart from updating the regulation, I feel that it is necessary to amend the Finance Companies Act to cope with the increasing size and risk exposure of this important sub-sector of our financial system.

Sir, in discussing this Amendment Bill, we should bear in mind the interests of depositors versus the commercial interests of finance companies. Similarly, we should also balance between the regulations which safeguard the integrity of our financial system and the flexibility which liberalises the scope for its growth. The Minister for Finance should be commended for nearly achieving the equilibrium between the diverse interests in this Amendment Bill.

Sir, let me now turn to two clauses. Clause 5 of the Amendment Bill re-enacts section 7. This new section 7 requires every finance company to have capital funds of not less than $50 million after a 8-year grace period. Clause 5 also introduces a new section 7A which stipulates that every finance company should maintain a 12% capital adequacy ratio within one year. These two requirements "will strengthen the financial fibre of finance companies in Singapore" as a finance company puts it. These new requirements also help to protect the interests of depositors and safeguard the integrity of our financial system. At the same time, the Minister is perhaps mindful of the impact of these new requirements on smaller finance companies. He has thus granted these smaller finance companies an unusually long period of eight years to meet the minimum capital sum. Sir, you may recall that under the Banking (Amendment) Act, 1993, local banks are required to meet the capital fund of $800 million within five years.

May I seek some clarifications on the amended section 7? (1) how is the $50 million minimum capital fund for finance companies determined? (2) the second question which I wanted to ask is: how many existing finance companies will not be able to meet this new capital requirement? But I have noted that the Minister has just mentioned that 13 of them have no problem. So may I ask the Minister to provide a breakdown of the existing finance companies by their present capital funds, eg, those companies which have capital funds of between $50 million and $100 million and those with capital funds of more than $100 million? This $100 million benchmark is relevant to Clause 9.

Sir, I also note that, under the new section 7A, the minimum 12% capital adequacy ratio for finance companies is the same as that for local banks. I have some questions here: (1) how many existing finance companies do not meet this ratio? (2) will the Minister consider extending the grace period or exercise some flexibility in the event that some finance companies fail to maintain this ratio? (3) compared to local banks, finance companies generally have lower capital funds and a higher level of risks in their loan and investment portfolios. In this regard, why is the minimum capital adequacy ratio stipulated for finance companies the same as that for local banks?

Let me now turn to clause 9. Clause 9 re-enacts section 23. Under the new subsection 1(d), the exposure limit to a single customer or a group of related customers will be reduced from 30% to 25% of the finance company's capital fund. A two-year grace period is given. This amendment is again the same as the Banking (Amendment) Act, 1993. May I ask the Minister whether the exposure to single customers is more serious or widespread among finance companies than among local banks, and whether the reduction of the limit from 30% to 25% will affect finance companies more adversely than local banks as finance companies generally have a smaller capital base?

The new section 23, subsections 1(b) and 1(c), extends the prohibition of finance companies' dealings to cover all precious metals, and stocks and shares and debt securities denominated in any foreign currency. However, under the new subsection (2), finance companies with not less than $100 million capital fund can apply for exemption from subsections 1(b) and 1(c), subject to the 10% limit of its capital fund and other conditions imposed by MAS. This can be seen as a relaxation as the existing subsection 1(b) under section 23 prohibits any finance company from dealing in "gold or foreign exchange of whatever kind". This should be welcomed by finance companies. As one finance company puts it: "finance companies have been given a new lease of life." However, may I ask the Minister: why is the exemption not extended to finance companies with capital funds of between $50 million and $100 million?

Sir, apart from these queries and clarifications, I support the Bill.

Mr Leong Horn Kee (Thomson GRC): Mr Speaker, Sir, I wish to raise a few points with regard to the Finance Companies (Amendment) Bill. Before I start, I wish to declare my interest as a director on the board of a finance company. The points I wish to raise are in the general interest of the industry.

I would like to start by saying that I am, in principle, in agreement with most of the provisions proposed in the Bill. These new amendments serve to tighten the admission criteria and financial and prudential requirements for the finance companies operating in Singapore. Like Dr Ow, I would like to commend the Minister for achieving a good balance between prudency regulations and flexibility for the operations of finance companies in Singapore.

I would like to comment on a few clauses in this Bill. First, on clause 5 (section 7) regarding the minimum $50 million capital funds. I agree with the requirement in this new section 7 which states that the existing finance companies should have a minimum capital fund of $50 million. I am pleased that the finance companies are given a slightly longer 8-year period to comply. This will enable finance companies to have time to either raise their capital funds or implement sale or merger with other finance companies. This measure will definitely help to enhance the financial strength of the remaining finance companies which wish to operate in this industry.

Next, on the new section 7A regarding the capital adequacy ratio. This new section requires finance companies to maintain a capital adequacy ratio of not less than 12%, or such percentage as may be determined by the Authority. I wish to make a point that to ensure a level playing field in the competition between the finance companies and the banks, I would ask the Authority to set the same standards for both banks and finance companies. For example, in arriving at the formula for calculating the ratio, such as the definition of the risk weighted assets, the same basis should be used, if not more favourable, for finance companies as compared to banks. As the Minister has said, finance companies are already facing very fierce competition from the banks.

Sir, at clause 7 (section 20) finance companies are required to publish their audited annual balance sheet and profit and loss account or such other details as required by the Authority in four daily newspapers, that means, in Malay, Tamil, Chinese and English papers. While this provision is inserted in the proposed Finance Companies (Amendment) Bill, in comparison, the recent amendment to the Banking Act requires banks to publish in such papers as prescribed by the Authority. I understand that the Authority has only the requirement that banks will publish their accounts in two daily papers, usually the English and Chinese papers. It seems that what has in fact happened is that in bringing the provisions and procedures of the Finance Companies (Amendment) Bill to be in line with the Banking Act, the old version of the section in the Banking Act has been used. Therefore, I would like to ask the Minister whether he would like to give the same flexibility to finance companies as has been given to the banks in the publication of their accounts.

Finally, Sir, I notice that there is also a provision in clause 9 (section 23) that finance companies which raise their capital funds to above $100 million may apply to the Authority to expand their business scope. They can be allowed to transact in new areas, such as trading in precious metals, and investment in foreign currencies and equities. However, the scope of such expanded businesses is not exactly stated. For example, they are allowed to invest in foreign currencies and equities and deal in precious metals on their own account, I presume. But would they be allowed also to deal on behalf of their customers' accounts I feel that it would be more appropriate for the relevant Authority to state explicitly which are the businesses and the scope of such businesses that the finance companies can expand into. This will enable the finance companies to decide whether they want to stay within the $50 million capital fund level, or move to the second level of $100 million capital funds and enjoy a larger span of businesses. Otherwise, it would be hard for finance companies to make a reasonable judgement whether to increase their capital two-fold from $50 million to $100 million, if the additional businesses they can enter into are not well defined.

Mr Chiam See Tong: Mr Speaker, Sir, I notice that the two previous speakers have not commented on clause 15, and that is in relation to the new sections 33A and 33B. These two new sections relate to drug money laundering. I have read these two new sections and I cannot find any problem with the new section 33B. The Government can only take action to assist foreign authority in its investigation into a foreign offence. In other words, under the new section 33B, there must already be an offence committed abroad, then the Attorney-General on our side can assist the foreign government. This is mainly done under the provisions of the Drug Trafficking (Confiscation of Benefits) Act or the Misuse of Drugs Act.

But as regards the new section 33A, there is no requirement of a prima facie offence committed abroad. Under the new section 33A, subsection (3)(a), the first part relates to a foreign offence, but the second part states that "in any other case, that there are reasonable grounds for suspecting that a specified person has carried on or has benefitted from drug trafficking;". This particular part of this section is rather wide. As long as you are suspicious of a person who suddenly brings in a couple of million dollars to Singapore, you can suspect that the money is derived from drug money. So I would like to ask the Minister what other safeguards there are for Singaporeans because I have heard this spoken in Singapore - this may not be true - that as soon as a Singaporean brings in lots of money, the IRAS and other relevant Government departments would like to know where the money comes from. But for foreigners, if they bring money into Singapore out of the blue, no questions are asked. So if there is such a section, it will be additional grounds for the Government to ask a Singaporean if he seemingly has no business and out of the blue he brings home lots of money, there you are, a finger can be pointed at him. So what are the safeguards in such cases? Of course, the hearing is in camera but still once a person is called to answer certain charges, I think the damage has already been done. Of course, the Minister also says that the Government would only do things under this Act in regard to national interest. I hope it will be done.

As I turn over the pages of the Bill, I notice that under clause 16 (amending section 57) the punishment section seems to be paltry. It imposes a fine not exceeding $5,000 or with imprisonment for a term not exceeding one year or with both. I do not know what these punishments are really for, but if they are for drug money laundering, then they would appear rather feeble.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, Dr Ow has asked a series of seven questions which I will try to answer in turn and Mr Leong has also asked three questions.

The first question raised by Dr Ow is how the $50 million minimum capital sum for finance companies determined. This figure was based on an assessment by MAS of the desirable minimum level of capital which finance companies ought to have in order to ensure that finance companies are sufficiently well capitalised and to provide an assurance to the public. The figure was decided in consultation with the Finance Houses Association of Singapore which originally asked for a minimum sum of $80 million. The reason for the higher figure is that they felt that a higher capital sum would enhance the status of the finance companies and assure depositors that they are financially sound and to improve their competitiveness relative to banks which had been encroaching into their areas. But the MAS decided to maintain the figure at $50 million initially subject to future reviews. It believes that $50 million is adequate for the time being.

The second question is how many existing finance companies would not be able to meet this new capital requirement and how many companies have capital sums below $50 million and so forth. Of the 23 finance companies, 10 are presently unable to meet the $50 million capital requirement. Since two of these are subsidiaries of banks, they should have no problem in raising the additional capital. The others will have eight years which I provides ample time for them to meet the increased funding requirements. The capital funding position of finance companies is as follows:

Those with capital funds below $50 million, there are 10 of them. Between $50 million and $100 million, there are six. Those with funds above $100 million, there are seven.

The third question is how many existing finance companies do not meet the 12% capital adequacy ratio and whether some flexibility might be introduced to assist them in case they cannot meet this requirement. Of the 23 finance companies, only five are currently unable to meet the capital adequacy ratio. However, the five finance companies should be able to meet the requirement within the one year grace period as most of their ratios are not much below the 12% level. I think they should have no real difficulty in meeting the requirement. If they are still unable to do so by the end of the grace period, they have the option of reducing their loan figure to meet this requirement.

The fourth question is why the same capital adequacy ratio applied to banks is also applied to finance companies. I should point out that in computing the capital adequacy ratio, the credit risk of the assets of a financial institution is already taken into account in the computation. In other words, the capital required to support a particular portfolio loan is calculated from the type of composition of the loan portfolio and the risk associated with it. Companies with the same total portfolio of, say, $100 million could have quite different capital requirements, depending on their risk profile. So the capital adequacy ratio itself and the formula used to provide for the risk is different between different companies and different between banks and finance companies.

The fifth question is whether the reduction in exposure from 30% to 25% for single customers will affect finance companies. We do not think so because this is a prudential requirement which already applies to banks, and finance companies should be able to meet this because their assets and capital have increased substantially over the years. If a finance company wishes to extend more loans to a single customer, then all it need do is to increase its capital. The basic requirement is to ensure that prudential risk is reduced.

Finally, Dr Ow has asked why the exemption granted to finance companies with capital sums exceeding $100 million to allow them to invest in foreign currency assets and gold and other precious metals should not be extended also to companies with capital funds between $50 million and $100 million. The reason is that dealing in foreign currency, whether in currencies or equities or bonds, involves a considerably higher risk and therefore only companies with adequate personnel and systems in place should be allowed to deal in these foreign currency assets. Any finance company with capital below $100 million would find it difficult to justify acquiring the expertise and the techniques necessary to deal in these securities adequately because they are also subject to the 10% capital limit on foreign currency exposures. So the amount of funds which they have available for operating in this area would be quite small and the MAS assesses that it is not worth their while if they have capital funds less than $100 million to venture into an area like foreign assets.

Mr Leong Horn Kee has asked three questions. The first question is whether the 12% capital adequacy ratio should not be also applied to banks. I have said that this is already an existing condition for banks and I have explained how the capital adequacy ratio actually works. So it poses no special disability or disadvantage to finance companies.

He has also asked whether the finance companies should be required to publish their annual accounts in four languages as required under the Banking Act. Under the Banking Act, banks which collect deposits of less than $250,000 from persons would be required to publish accounts in four languages because they cover a whole range of small depositors and it is important that these people are aware of the financial affairs of the company. For wholesale banks which collect large amounts exceeding $250,000, then they are given the discretion to publish their accounts in English. As all finance companies collect retail deposits, they are therefore required to publish their accounts in the newspapers in the four official languages. However, as with the Banking Act, the MAS will prescribe the format in which the accounts need to be published and it is the intention to allow finance companies to publish their accounts in a condensed form to reduce the cost burden.

Mr Leong Horn Kee has also asked, with the increase of the capital sum of finance companies from the present level to $50 million, what would be the range of businesses which finance companies can do. I should like to point out that in fact finance companies do practically everything that a bank does in the local Singapore dollar market. They are not allowed to issue cheques. Finance companies collect fixed and saving deposits from the public and lend money to the public. They provide general financing for motor vehicles, consumer durables and mortgage loans for housing. They are also allowed to lend to the various sectors such as building and construction, shipping, general commerce and manufacturing as well as to professionals and individuals. In other words, they are engaged in lending for housing loans, hire purchase of cars, hire purchase of consumer durables and they make personal loans. The limitation is that finance companies are not allowed to lend more than $5,000 unsecured whereas banks are allowed to do so.

For finance companies which have raised the capital sums to $100 million or more, flexibility has been allowed to allow them to invest their capital and to trade in foreign currencies and foreign assets to improve the yield on their capital funds. Whilst the increase in capital funds is required for prudential reasons, sufficient flexibility for the larger capitalised companies has been provided so that they can more effectively compete with the banks and sustain their development into the future.

Mr Chiam has asked two questions relating to drug offences. He feels that the scope for Singaporeans, particularly those who are being charged under these changes, is too wide and therefore there is a risk that people will be inadvertently caught. I have said that the provisions are such that for the charges to stand, there should be a prima facie case that the offence has been committed and that the court is satisfied. I think this is quite a significant safeguard so that no casual offences would be incurred by Singaporeans.

As to whether the fines are adequate, I think for the time being we consider them to be so. Confiscation, in fact, is the major deterrent.

Mr Chiam See Tong: Sir, under the new section 33A, I do not think it mentions anything about a prima facie case. It just merely states "if there is a reasonable suspicion". That is the reason why I thought it was too wide.

Dr Richard Hu Tsu Tau: The court must be satisfied with the conditions before it makes an order.

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. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee; reported without amendment; read a Third time and passed.