Credit card curbs rein in borrowing binge

New borrowers with debts above 12 times their monthly income and those from "highly leveraged households" were urged to pare their debt through restructuring options.
New borrowers with debts above 12 times their monthly income and those from "highly leveraged households" were urged to pare their debt through restructuring options.PHOTO: BLOOMBERG

The proportion of leveraged borrowers has fallen following new rules to rein in credit card debt but risks remain, according to the Financial Stability Review released yesterday.

The Monetary Authority of Singapore (MAS) said in the report that it is watching the impact of fintech in the rise of unsecured borrowing.

It cited data from Credit Bureau Singapore that showed the growth in outstanding credit card balances extended by banks has fallen. It is down from the peak of 14 per cent year on year in growth in the second quarter of 2012, to an average of 2.6 per cent increase in the first nine months of this year.

There were 27,000 borrowers with outstanding unsecured debt exceeding 18 times their monthly income as at August compared with 51,000 in February 2015, a decrease of 47 per cent. The proportion now represents less than 2 per cent of all unsecured credit borrowers.

The significant fall in the number of over-leveraged borrowers comes after the MAS ruled that financial institutions could not extend further unsecured credit to borrowers whose unsecured debts exceed the limit for three straight months.

The limit is being progressively tightened to allow some breathing room for borrowers.

Between June 2015 and May this year, the limit stood at 24 times a borrower's monthly income. The borrowing threshold was tightened to 18 times in June this year and, from June 2019, it will go down to 12 times.

New borrowers with debts above 12 times their monthly income and those from "highly leveraged households" were urged to pare their debt through restructuring options.

The MAS is also monitoring how consumer credit services offered by fintech companies could lead to higher unsecured credit by reducing loan administration costs.

"Risks arising from such lending should be balanced with the potential financial inclusion benefits that such lending can bring about," said the regulator.

In another study, the MAS noted that Singapore banks that do not defend themselves against fintech disruption could lose more than 5 per cent of their operating income.

It also cited numbers suggesting that cost savings from using fintech - such as in automating banking functions or using artificial intelligence - could cut costs by 30 per cent.

A version of this article appeared in the print edition of The Straits Times on December 01, 2017, with the headline 'Credit card curbs rein in borrowing binge'. Print Edition | Subscribe