CREDIT FACILITIES (Effective interest rate)

[Mr Speaker in the Chair]

Mr John De Payva asked the Minister for Finance if he will consider making it compulsory for all institutions offering credit facilities to inform the public the effective annual rate of interest they charge.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, in a free market such as Singapore, the charges and interest rates imposed by financial institutions for services rendered or credit facilities granted are commercial decisions determined by financial institutions themselves. Similarly, the Monetary Authority of Singapore (MAS) generally does not issue guidelines to banks with regard to their commercial banking practices as these should also be determined by the banks themselves. Allowing banks to determine their own charges and practices could help increase competition and benefit consumers. For example, in 1975, the cartel system of fixing deposit interest rates among banks was abolished. This benefited consumers as banks thereafter compete for deposits by offering more attractive interest rates.

However, in order to ensure that customers know the effective rate of interest charged by financial institutions, the Association of Banks in Singapore (ABS) and the Finance Houses Association of Singapore (FHAS) have, at the encouragement of MAS, provided for in their respective codes of conduct that their members should disclose the effective rather than the nominal rate of interest rate payable by customers wherever appropriate. The ABS and FHAS codes of conduct came into effect in June 1993 and May 1994, respectively. Banks and finance companies should therefore already be informing their customers of the effective rate of interest. Nevertheless, the Monetary Authority of Singapore will ask the associations to remind their members of the provision and to comply with it, and will monitor the situation closely.

The Member may also wish to know that the Monetary Authority of Singapore has recently issued a circular to all credit and charge card issuers in Singapore requiring them to print prominently on their billing statement the interest rates and charges which the card issuer would impose on cardholders for failing to pay their credit/charge card bills in full by due date and the manner in which such charges would be imposed.