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Pockets of risk - 1 in 5 cardholders in Singapore pays just the minimum sum
ONE in five credit-cardholders in Singapore are in the habit of paying only the minimum sum in making their monthly payments.
And women aged 30 and above are revolving their debt faster than they did five years ago, while their delinquency rates are close to, or have breached, levels seen during the Sars period in 2003.
Fresh data from Credit Bureau Singapore obtained by The Business Times shows pockets of risk in consumer debt that are pervasive among those living comfortably. But it indicates no clear deterioration overall when compared to historical data - and data from the US.
Still, the data is likely to set the stage for the forthcoming rules on unsecured lending here.
By June next year, an estimated 40,000 Singaporeans who borrowed more than a year's income through unsecured bank loans for three straight months will have their credit lines cut, until they reduce their debt. Banks also cannot grant more unsecured loans to several delinquent borrowers.
"The consumer credit situation in Singapore remains sound on the whole," a spokesman from the Monetary Authority of Singapore (MAS) told BT. "However, there is a small group of borrowers who have incurred unsustainable credit card and unsecured debts."
Credit Counselling Singapore (CCS) already expects more distressed debtors to come a-knocking, said its president Kuo How Nam, adding that it took some time to lobby successfully for more regulations to crack down on excessive borrowing.
CCS revealed in October a typical distressed debtor here took up nearly S$80,000 in loans - or 28 months of his pay - from seven creditors. Close to 65 per cent of these borrowers earned more than the average monthly wage of around S$3,700 in 2013.
More data provided by CCS showed that the number of top 10 per cent earners in distress has spiked, but from a very low base. Last year, 12 such individuals received counselling, making up 0.7 per cent of all who have been advised. In 2012, there was one. Up until October this year, there have been 15.
Gambling is an oft-cited reason for all distressed borrowers, said Mr Kuo, noting that gambling debts yanked up the average amount of distressed debt. But there's also a path paved with good intentions: one-third of the rich, distressed debtors this year are saddled with education loans.
High-income earners can be lured by larger credit limits, Mr Kuo noted. For those who earn at least S$120,000 a year, banks are offering unsecured credit of up to eight times their monthly income, or S$80,000 to start.
"That's just one bank. There are borrowers with a million dollars (of debt) on their credit cards," he said, while adding that this is extreme. Singaporeans hold an average of six cards.
Defaulted cardholders make up less than 0.2 per cent of all users now, though in 2002, it was 0.07 per cent.
The 22 per cent of habitual revolvers would have contributed to the S$5.42 billion in rollover balances in October, MAS data showed. That translates into a rollover ratio of around 15 per cent in October, against a historical low of 14.5 per cent in 2008. It is some way from the 25 per cent peak hit between 1999 and 2003.
As a comparison, 33 per cent of US consumers polled by Gallup this year said they kept a balance on their credit cards every month. This is a record low since the poll began in 2001, and reflects deleveraging by consumers.
In fact, given the improving credit conditions in the US, the write-off rate for soured credit-card debt in the US now stands at 3 per cent as at the third quarter of this year, data from the US Federal Reserve showed.
In Singapore, that rate is 5.4 per cent as at September, though its record stands at 8.6 per cent from 2003. About 64 per cent of cardholders here pay their balances in full every month, said MAS, suggesting the cards are used mainly for payment. Half of US consumers polled in 2012 pay in full, a 2013 Fed study showed.
The stress on the banking system here is tiny. In Singapore, non-performing loans of consumer loans - excluding mortgage payments - for the three homegrown banks stood at 0.5-0.8 per cent in the third quarter. In the US, delinquency rate for such consumer loans at commercial banks was 2.2 per cent.
More women are failing to pay up their minimum sum on their credit cards now, compared to the Sars period. There were more stresses then, compared to the last financial crisis, since many jobs were preserved through government stimulus in the most recent crisis.
While the delinquency rate for male credit-card borrowers - at an overall 5.6 per cent - remains higher than that of women, men have improved their ratings since Sars. And this applies across all age groups.
The converse is true for women of most ages, with the overall delinquency rate in October this year at 4.5 per cent, just slightly lower than 4.8 per cent in 2003, only as young women have not fallen into the debt trap yet.
Overall scores have also improved from 2003, though delinquency rates can understate payment problems, as they may not fully capture the existing credit facilities that have not been tapped.
It should be said that during Sars, retail sales were poor, as families stayed home. More women have also returned to work.
Today, banks have tied up with online luxury bag stores to offer interest-free instalment plans on credit card purchases. The same is available during Singapore's annual retail sale.
Household expenditure is growing in line with lifestyle choices, a 2013 survey showed, with Singaporeans spending more at restaurants and pubs, on travel, tuition fees, and on their hair, compared to five years ago. But income growth outpaced that of expenditure for all income groups.
The poor still spend more than they earn, but this is a smaller proportion to their income compared to five years ago. Among top earners, each member in the household typically spends about 30 per cent of their income. For the upper and middle class, it's about half.
The eagerness of banks to put debt in some consumers' hands - whether male or female - is clear. Banks send notices to customers to up their credit limit when they get a raise in salary. They are also known to put signed cheques in the mail, so consumers just have to cash them.
"I wouldn't call it predatory," said Mr Kuo, noting that if banks did their credit checks right, such offers should only go to the customers with tip-top credit scores, which stood at 36.1 per cent in November this year.
Indeed, imprudent behaviour stems less from a lack of information, but from the intent to borrow.
The Fed study showed that of all the US cardholders who do not regularly pay off their balances, 53 per cent would review information about annual interest rates every month. By comparison, only 34 of cardholders who always paid in full would do so.
"Cardholders who make decisions on whether or not to borrow and how much to borrow are the ones most likely to review price information frequently. This finding is consistent with the hypothesis that borrowers are more likely to be deliberative than transaction users," the study said.