Singapore's household, corporate debt situation resilient amid rising interest rates: Alvin Tan

The number of financially distressed consumers who have sought assistance from banks has decreased over the past year. PHOTO: ST FILE

SINGAPORE - The country's household and corporate debt situation remains resilient despite rising interest rates, said Monetary Authority of Singapore (MAS) board member Alvin Tan in Parliament on Monday (May 9).

The number of financially distressed consumers who have sought assistance from banks is not high, and has decreased over the past year, said Mr Tan, who is also Minister of State for Trade and Industry.

He noted that the proportion of non-performing mortgages remained low, at less than 1 per cent last year.

"MAS' stress test suggests that the median household's mortgage servicing ratio should remain manageable even under scenarios of significantly higher interest rates or lower incomes," he said.

The mortgage servicing ratio refers to the portion of a borrower's gross monthly income that goes towards repaying property loans.

Mr Tan added that the proportion of non-performing corporate loans has also remained low, at 2.6 per cent.

"Here too, MAS' stress test suggests that debt servicing of Singapore-listed firms is likely to remain manageable as interest rates rise, with most firms having sufficient earnings to cover their interest expenses and cash reserves to provide buffers."

He was responding to a question by Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) about whether, given rising interest rates, there has been an increase in consumers who have sought debt management assistance and if the Government will introduce measures for consumers and businesses facing short-term liquidity issues.

Mr Tan said industry-wide credit relief measures have been gradually withdrawn, in line with a broader economic recovery and a steady decline in the number of applications for assistance.

These measures, introduced in March 2020, were meant to provide short-term help for individuals and small and medium-sized enterprises as stringent public health measures led to temporary cash flow difficulties.

Mr Tan added: "Conversely, recent market-driven interest rate increases have been accompanied by continuing income growth, which mitigates their impact on the debt servicing ability of most borrowers.

"Indeed, the debt relief schemes introduced during the pandemic are not meant to insulate borrowers from the normalisation of interest rates."

Mr Tan added, however, that a small segment of households, especially those with higher leverages, could be more constrained by rising rates and should approach their lenders early to explore possible loan refinancing and repayment solutions.

He added that MAS has worked with the National Development and Manpower ministries, Housing Board (HDB) and financial institutions to establish "standardised interventions" for financially distressed HDB home owners when late repayments occur.

These include potential loan restructuring solutions, early referrals to appropriate social service agencies and in certain cases, helping them obtain alternative HDB accommodation where foreclosures are unavoidable.

Mr Tan added that likewise, companies with low net profit margins should approach their lenders early to work out suitable loan repayment plans.

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

Mr Saktiandi asked if it is possible to assess the future impact of rising interest rates on households and for the proportion of those that are likely to be vulnerable to the hikes.

Mr Tan said in response that most households should still be able to service their mortgages and other debt obligations as domestic interest rates pick up alongside global rates.

He noted that the overall debt servicing ability of households has remained manageable, with the median total debt servicing ratio (TDSR) at 43 per cent last year, well within the recently tightened threshold of 55 per cent.

The TDSR threshold limits the portion of a borrower's income that can be spent on monthly debt repayments. It was tightened last December as part of new measures to cool a buoyant property market.

Mr Tan added that consumers in financial distress can seek help through avenues such as Credit Counselling Singapore's debt management assistance or by taking up debt consolidation plans that may alleviate their repayment burdens.

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