BANKS (Imposition of service charges on small savers)

Mr Low Thia Khiang asked the Deputy Prime Minister (a) whether the imposition of service charges by banks on small savers will erode the value of savings and cause difficulty for lower income families to operate bank accounts; and (b) whether the new policy of the banks runs counter to the aim of a cashless society.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, banks are commercial entities. Any services or products that they provide have to make business sense. The fees they charge for these services and products are commercial decisions. MAS does not interfere, but it expects all financial institutions to conduct their business activities, including dealings with customers, in a transparent and professional manner, and in keeping with the guidelines set by their respective industry associations.

Banks, whether local or foreign, incur costs in servicing customers. They need to impose appropriate charges to recover these costs. Some foreign banks in Singapore have already been imposing charges on saving accounts for a number of years. These charges cover the costs of generating and mailing bank statements, operating teller counters, providing ATM services and so on.

Until recently, local banks have been absorbing the costs of providing saving accounts to customers. These costs had been partially offset by cross-subsidies from larger accounts and non-interest bearing current deposits. But the increasingly competitive banking environment is making it difficult for them to cross-subsidize certain groups of customers with others while maintaining overall competitiveness. Banks are also under pressure from customers to pay interest on current accounts and improve their level of services, all of which involve additional costs.

Some local banks have therefore decided to impose charges on these accounts. MAS has to allow them to do so, to compete on a level playing field with foreign banks. Banks will undoubtedly phase in the introduction of new charges, to maintain customer relationship and goodwill and allow them time to adapt. Banks will also have to actively find ways to service customers efficiently at the lowest cost possible to remain competitive.

There is considerable competition among banks in Singapore. This competition will ensure that charges are reasonable and affordable, although not free. Customers can choose freely which bank to use. A bank that imposes excessive charges or offers poor services will lose customers.

Customers also have a role in minimizing bank charges they incur. For example, customers who operate several small saving accounts concurrently may find it makes sense to consolidate these accounts into one. This will minimize the costs to banks of providing these accounts, and in turn the charges they impose.

Banks service charges do not run counter to our push towards a cashless society. A cashless society will hinge on a reliable, secure, efficient and extensive electronic payment system. This involves some costs. The challenge is to build a system that will be more efficient, convenient, and economical to use than cash.

Mr Low Thia Khiang (Hougang): Sir, is the Government in support of the banks' imposition of such charges on small savers, and whether the Government will consider the impact on lower income families who need to operate a bank account to pay in their salary or whatever by allowing the banks to impose such charges by the MAS?

BG Lee Hsien Loong: There is an impact whenever there is a charge which is levied, but it is not a matter for MAS to decide or not to decide, because MAS has never had any rule to require banks to provide free services. There are many banks in Singapore. Some are focused on the smaller savers and the smaller customer segment of the market. Some go for the middle or higher segment of the market. And they have to charge for their services. It is a facility which many wage-earners use because they receive their salaries, they have to pay their bills and so on. But, overall, our philosophy in Singapore has been that when there are costs, it is best that they are reflected. So, whether it is medical services, whether it is your utilities - electricity and water, whether it is telephones, they are all not for free, and yet everybody in Singapore has water, electricity, medical services and telephones. So there is really no argument to be made that banking services should be different.

Mrs Lim Hwee Hua (Marine Parade): Sir, I would like to ask the Deputy Prime Minister whether the provision of more manpower intensive services such as teller services at branches constitutes a significant proportion of the cost of providing services to retail customers in general, and whether banks will move towards not only providing more cost efficient alternatives but also educating their customers.

BG Lee Hsien Loong: These are costs which the banks will increasingly have to estimate, recognise and minimise as the environment becomes more competitive. When it is a protected environment and you are just operating in the old way, and everybody puts his money into the same few banks, big and small deposits, then the banks are not under pressure and they can provide services apparently free, which really cost a lot of money. Every ATM transaction costs maybe $1.50 to the bank, because you have to provide the software, the hardware, the telecommunications, the services, reconciliation and so on. Every counter transaction costs several dollars. Some people tell me that it may be even more than $10, because there are so many branches and some branches have very few customers per day, and you have to pay the rent, utilities, salaries and so on. And the bank manager meets only 10-20 customers per day. So the costs are very high.

In America, there are teller charges. If you go to a counter in order to do some transaction, you have to pay for that service. If you use an ATM, you also have to pay for that ATM. One way or the other, the cost will finally have to be reflected. Banks do not have infinitely deep pockets with which to generate largesse all round. These are adjustments which we can take a little bit of time but which, eventually, we have to make.

Overall, I am convinced that the banking services will remain affordable. Singaporeans are not poor, and the banks have a great incentive to reduce their costs and find more efficient ways of providing these services so that they can break even and collect all the little deposits which are available outside there, because there is benefit to them if they can reach out that way.

Mr Heng Chiang Meng (Cheng San): Sir, may I ask the Deputy Prime Minister that if DBS were to do the same thing, would the Government, as the largest shareholder, use its influence?

BG Lee Hsien Loong: The Government, as the largest shareholder, cannot act against the commercial judgment of the banks. DBS has only 40% Government ownership. So they have to act in their commercial interest. They have taken over POSBank. There is a certain understanding that POSBank has come with a social mission and DBS inherits this social mission. It is not something which they can wash their hands off. There are parts of it which need to be gradually rationalised, eg, the lower interest mortgage loans which POSBank used to provide and which DBS has said, over a period of a few years, it will have to adjust those to market rates. Also, on deposits and savings deposits, some adjustments will be necessary. But I am sure that they will take their time and do it in a moderate way.

Mr J. B. Jeyaretnam (Non-Constitueny Member): Sir, is the Deputy Prime Minister saying, as I understand him, that because banks are commercial institutions, they should be free to charge whatever they like for whatever service they provide? Is he saying that any customer who has any complaint about any charge that is made has no recourse anywhere, but has to accept it? Is it not time, as I have asked before, that the Government considered appointing a banking ombudsman to receive any complaints from any customers about any charge imposed by any bank?

BG Lee Hsien Loong: Mr Speaker, Sir, there are five major Singapore banks and 22 foreign banks with full licences which provide a full range of services. There are 3 million plus Singaporeans and if they do not like the way any bank is treating them, take their custom to another bank. And many banks, including foreign ones, will be very happy to make sure that you are properly treated and will not be unfairly charged, because it is foolish for them to do that. They lose business. If you feel that the bank is not being fair to you, you are fully at liberty to make a public row of it, and the matter will be debated. And you can make a representation to the Association of Banks. They will discuss it. But this is a free market, and that is the way the market works.

Mr Simon S C Tay (Nominated Member): Sir, I have three supplementary questions. First, how many small account holders are we talking about? Does the Deputy Prime Minister have a sense of how many are, say, below $500? Secondly, would the Deputy Prime Minister consider the need for transparency and clarity in banking charges, especially to give small account holders simple terms which they can understand? Thirdly, he mentioned that the social mission of POSBank has been changed. Would he like to indicate how DBS and the Government, as a major shareholder in DBS, see the change in the social mission of POSBank?

BG Lee Hsien Loong: Firstly, on numbers, I do not have the figures. It depends on where you draw the line. If you file a Question, I will try and look them up for you.

Secondly, on clarity and transparency, I fully agree. That is one of the problems with the present arrangement. There is no clarity and transparency. You make a current account deposit and you can have $10,000 there and you are paid no interest, neither do they tell you that you should really be paid interest. In other countries, you would. But in Singapore, we just quietly do not talk about it. Now that has changed. It is incumbent not just on banks but on other financial institutions - brokers, stockbrokers, insurers, fund managers, unit trusts - that when they provide a service, they should state quite clearly what is their fee and what is your investment. For example, in unit trusts, one of the factors which an investor must consider is how much of their payment is fee. When you put in your contribution, it may be a significant amount that goes straightaway to fees. Or when you buy insurance from your broker, a significant amount of your premium may go to commissions to the broker or, if not, payments in some other form. So those should be made transparent, and similarly for banks.

As for POSBank's social mission, as I have explained, we have not abandoned this social mission, but this is something which has to be evolved and adjusted over time. Where it has to do with the POSBank's mortgage loans where the social mission is really the weakest case, we are going to take some years to adjust them to market levels. In other cases, like taking deposits and encouraging savings, that is a mission which needs to continue. But what form DBS should choose in order to implement this mission is something which I am sure DBS is considering now.

Mr Low Thia Khiang: Has the Government the responsibility to balance commercial interests against social interests? If so, what approach would the Government take in terms of the current issue of bank charges on the small savers?

BG Lee Hsien Loong: I have explained to the Member that there is DBS Bank with POSBank and they have to consider how this role will be implemented for their POSBank account holders. For the others, it is a free market and they have to compete against each other. Whether it is PUB with utilities or Telecom with telephone charges, or any other essential service in Singapore, food, medical care, there has to be really a price which reflects the cost of providing that service. Because we have followed that philosophy, therefore, we have prospered and nearly everybody can enjoy in Singapore a full range of essential services to the families. 95% have telephones and television sets. So it is not a question of depriving people. It is a question of having the right system so that we can prosper and everybody will be able to enjoy these services.

Dr Toh See Kiat (Aljunied): Sir, on the issue of transparency, would it not be good for the banks, firstly, to make it very prominent by displaying perhaps on their premises the rules that they have in relation to not just small savers but all savers? Secondly, there is a code of banking practice which governs the relationship of banks with the customers but, to my knowledge, it is not even displayed or made transparent and available to the consumer. Would it not be timely to ask the banks to do that, Sir?

BG Lee Hsien Loong: We can consider that. I am sure CASE will add their voice to this. It is really not just a matter of what you paste on your doors, but the whole approach towards the way you do business.

Mr Jeyaretnam: Is the Deputy Prime Minister aware that in other countries, the office of the banking ombudsman is maintained by the banks themselves? They see it as something which is very good for their own business. Has the Government ever thought of suggesting to the banks in Singapore that they should perhaps also move towards having a banking ombudsman?

BG Lee Hsien Loong: Sir, if the banks feel that it is necessary, I think they will work it out themselves. In this case, we have an Association of Banks and they have a certain moral suasion. They have issued guidelines and I do not think there is any difficulty with banks not taking advice from the Association of Banks. But there is no complaint before us today that the banks have acted in a manner contrary to what they should do. That they have to charge cannot be disputed. There is no allegation that these are unreasonable charges or flagrantly exploitative. I understand that the Non-Constituency Member, as a matter of principle, thinks ombudsmen are good and they work in some countries. As I have explained before, in answer to him, we do not feel that we need one in Singapore.