DOMESTIC NON-PERFORMING LOANS

Dr Lee Tsao Yuan asked the Deputy Prime Minister whether there has been an increase in domestic non-performing loans as a result of the economic downturn, with regard to (i) absolute magnitude; (ii) magnitude as a percentage of total domestic loans; and (iii) the number of such loans.

BG Lee Hsien Loong: As at 30th June 1998, the total domestic non-performing loans (NPLs) of the 6 local banking groups amounted to $5.4 billion or 3.9% of their total domestic loans. This compares with $3.1 billion or 2.3% of total domestic loans in December 1997. The number of such loans was 7,913, compared to 6,213 loans six months earlier.

87% of the domestic non-performing loans are in the 'substandard' category, with 6% in the 'doubtful' category and 7% in the 'bad' or 'loss' category. The banks have made provisions for all NPLs in line with MAS guidelines, ie, 10% provision for the unsecured portion of substandard loans, 50% for doubtful loans and 100% for loss loans1.

40% of the increase in NPLs is due to the banks adopting stricter criteria for classifying loans. Banks now automatically classify loans as NPLs once the principal or interest payments are 3 months or more in arrears, compared to the previous rule of 6 months. 3 months is increasingly the international practice. In addition, banks are continuing to treat all loans to borrowers with weak financials as NPL, regardless of whether they are in arrears. The remaining 60% of the increase in NPLs reflects the slowdown in the Singapore economy.

1 Non-performing loans are those graded Substandard, Doubtful and Loss. The definitions are as follows:-

a) Substandard : loans are classified substandard when their normal repayments are overdue or may be in jeopardy. Also included in this category are performing loans which are graded substandard solely because of the borrowers' weak financials.

b) Doubtful : loans are classified doubtful when full liquidation of outstanding debts appear questionable and the accounts suggest that there will be a loss, the exact amount of which cannot be determined as yet.

c) Loss : loans are classified as loss when outstanding debts are regarded as uncollectible.