SINGAPORE: From January next year, borrowing rules will be tightened for those heavily in debt, the Monetary Authority of Singapore (MAS) announced on Friday (Dec 15).
A borrower with outstanding unsecured debts exceeding six times his monthly income will not be able to tap on new unsecured credit lines. This means he cannot get an increase in his existing credit limit or obtain new unsecured credit that will cause his total credit limit to exceed 12 times of his monthly income.
Unsecured credit involves loans that are not backed by collateral, like debts arising from the use of credit cards for instance.
Secured or exempted loans, such as loans for business, education or medical purposes and mortgages, will not be affected.
Under the new measure, borrowers can still use their existing credit facilities, and they will not be required to reduce the limit of those facilities as well.
The move aims to help borrowers with outstanding unsecured debts of between six and 12 months of their monthly income. There are an estimated 60,000 borrowers in this pool, making up around 4 per cent of the total number of unsecured credit users.
CURRENT LIMITS INTRODUCED IN 2015
Currently, the industry-wide borrowing limit prevents an individual from getting new unsecured credit and drawing upon existing loan facilities once interest-bearing unsecured debts exceed the prevailing borrowing limit for three consecutive months.
This was introduced in 2015 to help people avoid accumulating excessive debt.
The limit stands at 18 times a person’s monthly income, and will be brought down to 12 times that in June 2019.
Since the limit was introduced, the number of those with outstanding unsecured debts exceeding their annual income has come down by about 21,000, MAS said.
The new credit limit management measure that kicks in from 2018 is a pre-emptive move to help borrowers cap their total credit limit before being affected by the industry-wide borrowing limit, the central bank added.
“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," said Ms Loo Siew Yee, MAS' assistant managing director for policy, risk and surveillance.
Several assistance schemes and repayment plans, such as the Debt Consolidation Plan, are available to help these borrowers work down their existing debts, she added.
The central bank said that the vast majority of unsecured borrowers in Singapore are prudent.
But since January this year, there have been about 4,000 borrowers every month who have unsecured debts above 12 times their monthly income, it said.