Tighter lending restrictions could affect some 30,000 people: Credit Counselling Singapore
- POSTED: 23 Sep 2013 16:40
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Credit Counselling Singapore estimates that as many as 30,000 borrowers could be under distress, from tighter restrictions on credit card and unsecured lending.
SINGAPORE: Credit Counselling Singapore (CCS) estimates that as many as 30,000 borrowers could be under distress, from tighter restrictions on credit card and unsecured lending.
But based on data from Credit Bureau Singapore (CBS), the credit health of Singapore consumers has improved from a year ago.
One possible explanation is that even as consumers borrow more, they have become more responsible in managing debt.
Earlier this month, the Monetary Authority of Singapore moved to cap unsecured credit.
Come June 2015, an individual's total borrowings - across all financial institutions - must not exceed 12 months of his income.
CCS estimates that some 30,000 loan holders could be affected by the industry-wide income limit.
"Last year, the bankruptcy petitions were in the region of 3,200. So for every one person that is the subject of a bankruptcy petition, you can hazard a guess as to how many (other) people are in a state of distress. It could be 10 for every one. So there could be as many as 30,000 people that are in a severe state of distress," said Kuo How Nam, president of Credit Counselling Singapore.
He elaborated: "Another way of looking at it is the total amount of debts which the banks write off. Every month, they write off about S$20 million – that is S$240 million every year.
“So, taking an average (debt value per person) of say, S$80,000, you end up with a figure of about 3,000. Again, applying the 10:1 ratio, you get 30,000 people."
Mr Kuo noted: "Typically a person that comes to CCS owes about S$80,000 to seven banks on their credit cards. And based on the disposable income, these debts will represent easily 26 months of their salary."
Last year, about 1,000 people sought help from CCS, a charity set up to help consumers resolve debt problems.
That is just a tiny fraction of the 2.35 million consumers with credit activity being tracked by CBS.
According to CBS, debt delinquency rates dropped to 6.4 per cent in March this year, from 6.5 per cent from a year ago.
This is despite an increase in consumer debt over the same period.
On a year-on-year basis, consumer debt in mortgages, credit card billings and study loans increased in March.
Only car loans saw a drop in outstanding balances.
William Lim, executive director of Credit Bureau Singapore, said: "If you look at the figures, I think the health in terms of the consumers – it is still generally healthy... if you look at the statistics for default as well as for delinquency."
CBS also said the average credit score of consumers in Singapore has improved to 1,904 in March this year, from 1,897 a year ago.
The highest possible score is 2,000 and it represents the lowest chance of consumer default.
Its study is based on a national sample of 2.35 million consumers from 28 lenders.
Of this, 1.73 million consumers have a gradable score, while the rest are not gradable due to a host of reasons, including insufficient credit history.