MERGER OF FINANCE COMPANIES

Mr Shriniwas Rai asked the Deputy Prime Minister what steps the Government intends to take to encourage finance companies to merge so that these companies can actively participate in the growth of the financial sector in Singapore.

BG Lee Hsien Loong: The Finance Companies Act was revised in December 1994 to raise the minimum capital requirement for finance companies from $0.5 million to $50 million. The aim was to enable finance companies to have the resources to compete more effectively and increase public confidence in them. The finance companies have been given up to year 2003 to comply with the $50 million minimum capital requirement.

Since the raising of the minimum capital requirement, 3 finance companies with small capital funds have ceased to operate. Of the 18 finance companies currently in operation, five have capital funds of less than $50 million. If they fail to increase their capital funds by 2003, they would have to merge with larger financial institutions or cease operations.

MAS has, through frequent dialogue, encouraged the smaller independent finance companies to merge to meet competition and upgrade their operations. However, this is a commercial decision left to the finance companies. They will have to judge how best to meet the pressures of the marketplace, particularly as we gradually liberalise the domestic financial system to allow for greater competition.