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MAS tightens safeguard against excessive unsecured borrowing
COME Jan 1, there will be a new measure to help borrowers avoid accumulating excessive unsecured debts.
The new Credit Limit Management Measure will cap the additional unsecured credit that a financial institution (FI) may extend to a borrower whose outstanding unsecured debts exceed six times his monthly income.
Under the new measure, where an individual's outstanding unsecured debts exceeds six times their monthly income, an FI will not be allowed to grant any increase in credit limit or any new unsecured credit facilities, that will cause the individual's total credit limit to exceed 12 times their monthly income.
The measure aims to help borrowers with between six and 12 months of monthly income of outstanding unsecured debts from becoming highly indebted (defined as more than 12 months of debts).
There are an estimated 60,000 borrowers in this pool, or about 4 per cent of the total 1.5 million unsecured credit users here.
These borrowers will only be affected if they apply for new credit facilities or a credit limit increase, that will cause their total credit limit to exceed 12 times their monthly income.
Borrowers can continue to draw on their existing un-utilised unsecured credit facilities. The new measure will not require borrowers to reduce the credit limit of their existing credit facilities.
Unsecured credit facilities include credit cards and personal loans and exclude credit facilities such as mortgages and car loans.
The Monetary Authority of Singapore (MAS) says that the measure aims to pre-emptively cap their total credit limit before they are affected by the industry-wide borrowing limit.
The industry-wide borrowing limit prevents an individual from obtaining new unsecured credit and drawing down on his existing unsecured credit facilities once his aggregate interest-bearing unsecured debts exceed the prevailing borrowing limit for three consecutive months.
The borrowing limit is currently 18 times a borrower's monthly income. It will be lowered to 12 times from June 1, 2019.
Loo Siew Yee, MAS's assistant managing director (policy, risk & surveillance), said: "We are making steady progress in helping borrowers manage their unsecured debts. The industry-wide borrowing limit has reduced the overall number of highly indebted borrowers.
"Several assistance schemes and repayment plans, such as the Debt Consolidation Plan launched earlier this year by The Association of Banks in Singapore, are available to help these borrowers work down their existing debts. The measure announced today is pre-emptive in nature - it will help borrowers manage their unsecured debts early and avoid becoming highly indebted."
The overall unsecured credit situation in Singapore remains healthy but some borrowers continue to increase their indebtedness. The vast majority of unsecured borrowers are borrowing within prudent limits.
Since the introduction of the industry-wide borrowing limit in June 2015, the number of highly indebted borrowers - those with outstanding unsecured debts exceeding their annual income - has come down by about 21,000, from 5 per cent to below 4 per cent of total unsecured borrowers.
However, since January this year, an average of about 4,000 borrowers per month have increased their unsecured debts to above 12 times their monthly income compared to the previous month.\