Covid-19 debt relief ‘not meant to insulate borrowers’ from rising rates; household, business debt still manageable: Alvin Tan

BUSINESS credit relief measures are on their way out amid broad economic recovery, even as interest rates rise, Minister of State for Trade and Industry Alvin Tan said on Monday (May 9).

“The debt relief schemes introduced during the pandemic are not meant to insulate borrowers from the normalisation of interest rates,” Tan, who is also on the board of the Monetary Authority of Singapore (MAS) and Minister of State for Culture, Community and Youth, told the House.

The number of financially distressed consumers who have sought assistance from banks “is not high and has been decreasing over the past year”, Tan also noted, to a parliamentary question on whether the number of such consumers seeking debt help has risen in that timeframe.

The shares of non-performing mortgages and non-performing corporate loans have remained low, while MAS stress tests suggest that the median household mortgage servicing ratio and debt servicing of Singapore-listed firms are also likely to remain manageable, he added.

People’s Action Party MP Saktiandi Supaat (Bishan-Toa Payoh GRC) had asked about the expected impact of rising interest rates, as well as whether the government will introduce temporary relief measures for consumers and businesses facing short-term liquidity issues.

Tan replied that short-term credit relief measures - which were introduced in March 2020 as businesses and individuals ran into “temporary cash flow difficulties” - have been gradually withdrawn as the Singapore economy picks up and the number of applications declines steadily.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“Recent market-driven interest rate increases have been accompanied by continuing income growth. This mitigates the impact on the debt servicing ability of most borrowers,” he added.

For instance, “most households should still be able to service their mortgages and other debt obligations as Singapore’s domestic interest rates pick up alongside global rates”, with the median total debt servicing ratio of 43 per cent in 2021 “well within” the 55 per cent threshold.

Meanwhile, credit card rollover balances as a share of gross domestic product declined from 1.3 per cent at end-2019 to about 1 per cent at end-2021, while the charge-off rate - which reflects the share of defaulted balances - fell from 6.3 per cent to 4.4 per cent over the same period.

Said Tan: “More broadly, everyone should exercise caution in their new borrowings. Households and businesses should plan for future and further interest rate increases and be sure of their ability to service the loans before making additional long-term financial commitments.”