PERFORMANCE OF FINANCE COMPANIES AGAINST COMPETITION FROM OTHER FINANCIAL DEPOSITORY INSTITUTIONS

Abstract

In the past two decades, finance companies in Singapore faced competition not only from within the industry.but also from other financial institutions such as commercial banks and the POSBank. This study looks into three particular areas - deposit collection, lending and profitability - in an attempt to assess the inter-industry competition encountered by finance companies. The question to be answered from the findings is how well have finance companies held their grounds against competition. From the findings in the area of deposit collection, finance companies' declining market share could be attributed to narrowing interest differentials. slower growth of branches. inability to keep pace with the development of electronic banking and product innovations by other financial institutions. For lending. their loans and advances had grown at a comparable rate to banks, although competition had narrowed the interest differentials between finance companies and banks. For their two major areas of lending, the market share of finance companies in housing loans had decreased steadily. and they had to rely heavily on motor vehicle financing for growth in recent years. An investigation on the interest spread and profitability enjoyed by finance companies reveals that their performance had been relatively poor. The difficulty faced by finance companies in coping with the keen competition posed by banks and POSBank in these areas brings up the issue of their role in the Singapore economy. If finance companies are going to continue playing an active part in the financial service industry, they will have to look for new directions and move towards new horizon.