MANAGEMENT OF OVERALL CREDIT RISK

Mrs Lim Hwee Hua asked the Deputy Prime Minister, given the changing nature of the provision of financial services, especially where a more timely extension of online credit may mean that credit risk assessment lags approvals, how overall credit risk will be managed.

Mrs Lim Hwee Hua asked the Deputy Prime Minister whether there are signs, anecdotal or actual, of excessive consumer credit, given the recovery in confidence and the advent of online services, and how the Government will act to curb such excess, if necessary.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, may I answer, with your permission, Question Nos. 2 and 3 together?

Mr Speaker: Yes.

BG Lee Hsien Loong: Consumer credit, overall, has not increased significantly. Total bank loans to individuals declined by 0.8% in 1999 to $21.6 billion, and picked up by only 2% in February 2000, compared to a year ago. Credit card spending has gone up by 16% in 1999 and 19% in February 2000, after declining in 1998 due to the downturn in the economy. After a slowdown in 1998, the amounts rolled-over on credit card balances have also grown by 23% in 1999 and 25% in February 2000, compared to a year ago. But bad debts on credit card spending remained low, at 0.6% of spending.

There has been a rapid emergence of online services allowing purchases by credit card. This will no doubt grow, as e-commerce becomes prevalent and more consumers become familiar with the Internet. While this may alter the means of payment and spending patterns, credit spending in Singapore is still governed by the minimum income requirement and two times monthly salary limit that MAS imposes.

The traditional methods by which banks assess and manage their credit risks still apply in the electronic age. Offering on-line credit facilities should not change the criteria that banks use to evaluate credit applications. Banks will have to carefully balance the need to grant quick approval of on-line applications with the need to verify the income and credit history of the applicants.

However, technology exists for banks to perform credit assessment more efficiently and quickly, and thus become more responsive to consumers, particularly for those with whom they have an existing banking relationship. Within the industry, the Association of Banks is looking into the formation of a Consumer Credit Rating Bureau which will help the banking community identify risk candidates for credit. All these enable the banks to manage their overall credit risks better, while raising the quality of service to their customers.

While the pick-up in credit so far has not been excessive, the Government will continue to monitor the trends in consumer credit to see if further measures are necessary.

Assoc. Prof. Toh See Kiat (Aljunied): Mr Speaker, Sir, I just want to ask the Deputy Prime Minister that in view of the fact that consumer credit can sometimes be encouraged by financial institutions which advertise seemingly minimal interest rates and perhaps hide charges and penalty clauses which actually make the low interest rates non-effective, would the Government look into legislation to prevent such practices?

BG Lee Hsien Loong: Sir, we will study the matter. I do not believe legislation is a good solution. Basically, we want people who are selling things or offering loans to be honest and to advertise honestly and accurately, and not to make misleading claims. Of course, the whole idea of advertising is to make your thing look even better than it really is. So, there is a fine line to be drawn, and I believe CASE has been helping us to draw that line.

Mrs Lim Hwee Hua (Marine Parade): Sir, I would like to know whether, as a philosophy, the MAS would be inclined to be more stringent with regard to the granting of non-security backed on-line credit.

BG Lee Hsien Loong: Mr Speaker, Sir, I have a Question to be answered next concerning credit for security. It is slightly different from unsecured lending. We have limits on unsecured lending of two months of salary, and it is basically an income requirement. We think that is satisfactory, because as incomes rise, the two months' salary automatically increases.

Assoc. Prof. Toh See Kiat: Sir, I would like to ask the DPM whether he thinks that it is more effective to have legislation and to come out with a standard that banks, for example, must have when they advertise interest rates - like effective annual interest rates. CASE, being a members' association and not a Government agency, would lack the bite that legislation has.

BG Lee Hsien Loong: Sir, let us see whether we have a problem. If so, then we can study the solutions, because I do not think, up to now, we have had a problem with banks making misleading advertisements of interest rates they are offering. So I would be inclined to wait for the problem to arise before examining possible solutions.