CAR FINANCING (Liberalisation)

Miss Penny Low asked the Deputy Prime Minister and Minister for Finance (a) what is the rationale for the recent liberalisation of car financing; and (b) whether, with the rise in bankruptcies and unemployment, the timing of the announcement is apt.

Dr Wang Kai Yuen asked the Deputy Prime Minister and Minister for Finance (a) what is the rationale for relaxing the parameters of vehicle loans for the purchase of automobiles; (b) whether this is a fundamental shift in the guiding principles of consumer loans; and (c) whether the same considerations will be applied to other consumer loans, such as housing loans.

The Second Minister for Finance (Mr Lim Hng Kiang) (for the Deputy Prime Minister and Minister for Finance): Mr Speaker, Sir, may I have your permission to take Question Nos. 6 and 7 together?

Mr Speaker: Yes.

Mr Lim Hng Kiang: Miss Penny Low and Dr Wang Kai Yuen have sought clarification on MAS' rationale for the lifting of the financial limits on car loans. This decision is the consequence of a general shift in MAS' supervisory philosophy from prescriptive regulation to a risk-based approach, where MAS avoids micro managing decisions by financial institutions and consumers, and applies supervisory limits only where necessary.

From a risk perspective, the financial limits on car loans were unnecessary, because such loans form a small proportion of total loans in the financial system, and the proportion of car loans that are non-performing is low. From a consumer perspective, car loans are no different from other forms of hire purchase.

Dr Wang has asked whether this sets a precedent for the removal of other rules on consumer loans, such as housing loans. This is not the case. Housing loans are significant from a risk perspective because they form a large proportion of total loans in the financial system. Unsecured loans and credit card facilities are smaller than housing loans, but MAS regulates them for prudential and social reasons. Many other regulators around the world are likewise concerned with the risks posed by rapid growth in property and consumer loans to the health of their financial systems. Hence, MAS has no plans to remove these necessary safeguards.

Miss Low noted that there has been a rise in bankruptcies and unemployment rates and questioned the appropriateness of the timing of this announcement. The lifting of the car financing limits does not in any way imply that the Government is less concerned about Singaporeans facing financial difficulties as a result of excessive borrowing for consumption. However, the lifting of the limits does mean that Singaporeans must take charge of their own finances when making car purchases and determine the level of financing that is appropriate for their circumstances, bearing in mind their repayment ability over the longer term.

At the same time, financial institutions are expected to act prudently and decide on the quantum of financing and repayment period, based on their assessment of the repayment ability of their borrowers.