The Monetary Authority of Singapore (MAS) has announced regulatory changes to strengthen the resilience of finance companies and enhance their
ability to provide financing to small and medium sized enterprises (SMEs).
Finance companies
complement banks, providing what are often more personalised
and
customised
solutions for
smaller-sized
businesses. MAS will relax
some
business restrictions
that currently apply to
finance companies.
The limit on a finance company’s aggregate uncollateralised business loans will be
raised to up to 25% of its capital funds, from the current 10%. At the same time, the limit on
uncollateralised
business loans to a single borrower will also be raised to up to 0.5% of capital funds, from the
current S$5,000. These
changes
will better enable finance companies to serve their SME
customers, many of whom require
unsecured credit for working capital, MAS said.
Finance companies will be allowed to
offer current account and chequing services to
their
business customers
They will also be allowed to
join electronic payment networks,
including Inter-bank GIRO, Fast and Secure Transfers (FAST)
and Electronic Funds Transfer at
Point of Sale (EFTPOS).
These changes will enable finance companies to provide
more
comprehensive credit and deposit services to SMEs.
MAS will
retain other regulatory
restrictions
on finance companies, such
as restrictions
on
foreign currency exposures and derivatives trading. MAS will
also
require
finance companies to enhance their corporate governance and risk management.
This will
include
stricter
rules on related party transactions and limits on
exposures to the property
sector.
MAS will phase in the above regulatory changes starting from this year.
MAS will further liberalise its existing policy of not allowing
a
foreign takeover of a finance
company. This will accord finance companies greater
flexibility
to explore strategic
partnerships and innovative business models
that can strengthen their SME financing
business.
Specifically, MAS is prepared to consider an application for a merger or acquisition if
the prospective merger partner or acquirer commits
to maintaining SME financing as a core
business of the finance company. In addition, the merger partner or acquirer must be able to
demonstrate expertise
in SME financing
and present proposals to enhance the finance
company’s SME lending activities with new technologies, methodologies or business models.
Ong Chong Tee,
Deputy
MD, MAS, said: “The
liberalisation
of
finance
companies will facilitate
their
efforts to invest in
new
capabilities to enhance their core SME
financing business. These
changes
are
part of MAS’
ongoing
efforts
to ensure that our
financial sector
continues to be able to
support enterprise development.”
There are three licensed finance companies in Singapore. In Q216, finance companies accounted for
just under S$7
billion of outstanding SME loans.
