It is reassuring that the number of highly indebted borrowers fell from 75,500 in June 2015 to 44,700 in October last year, a decline of about 40 per cent. Also, their outstanding debt was reduced from $6.7 billion to $4.2 billion. Although the substantial reduction in indebtedness reflects changes over four years, it nevertheless attests to the usefulness of regulatory borrowing limits. Credit card debt is largely under control and credit quality has improved since the Monetary Authority of Singapore began to cap borrowing limits in June 2015. Highly indebted, or overextended, borrowers - defined as those owing unsecured debt of more than 12 times their monthly income - represent about 2 per cent of total unsecured credit borrowers. A credit limit imposed in June last year capped unsecured borrowing at 12 times a borrower's monthly income. People who exceed the limit must update their income or reduce outstanding debt before they can be granted new unsecured credit.

The logic is simple. People are forced to spend less when the credit limit is lowered mandatorily. Regulatory steps become necessary when indebtedness threatens to become a runaway problem. It was reported in 2013 that Singapore households were among the most indebted in Asia relative to what they earned, according to a Standard Chartered study. Households had borrowings worth 151 per cent of their annual income the previous year, second in the region only to Malaysia, with debt at 182 per cent of income. Even as late as last year, the growth of household debt in emerging Asian countries, especially China, was flagged as a risk to the global economy. In economic powerhouse China, household debt as a percentage of nominal gross domestic product was more than 50 per cent. Alarmingly, household debt as a percentage of disposable income stood at 120 per cent in China, higher than the approximately 100 per cent in the United States.