Unsecured loans of some S’poreans raise concern

SINGAPORE — Since the authorities had to intervene last year to quell a rise in household debt, the situation has improved, with a healthy overall consumer credit situation here. But there are now concerns over a group of Singaporeans — numbering tens of thousands — who are mostly highly educated, earning above the median income but living way beyond their means.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday flagged this small group of borrowers who have incurred unsustainable credit card and unsecured debts. Based on estimates by the Monetary Authority of Singapore (MAS), about 3 per cent of unsecured credit borrowers here have accumulated unsecured debts that exceed their annual incomes, said Mr Tharman, who was speaking at Credit Counselling Singapore’s (CCS) 10th anniversary lunch at The Ritz-Carlton Millenia hotel.

“They are mainly not from the lower-income group. Close to 65 per cent of these individuals earn incomes above the median and more than half hold tertiary education qualifications,” he said.

Unsecured debt is money owed that is not tied to any assets, in contrast to secured debt such as housing and car loans. Examples include credit card debt and personal loans.

CCS, a non-profit organisation, said the average amount owed by individuals under its debt restructuring programme is S$84,000 per debtor — about 28 times their average disposable monthly income of about S$3,000.

Since it was set up in 2004, CCS has seen more debtors seeking help. Within the first eight months this year, the charity has counselled 1,509 individuals, more than the annual average of 1,377 in the preceding five years.

CCS president Kuo How Nam said the increase does not indicate a worsening debt situation, attributing it to the rising number of borrowers and greater awareness of CCS’ services.

Among the individuals who turned to CCS for help, common reasons for falling into debt were overspending on travelling and cars, as well as job-related situations such as retrenchment and pay cuts. Other reasons included medical expenses and using unsecured credit to fund a business.

CCS will roll out a centralised repayment solution to help borrowers coordinate negotiations across financial institutions and work out a repayment plan. The plan will take into account a borrower’s income, expenditure, needs and loan obligations. All the leading retail banks have agreed to get on board with the new system by the first quarter of next year.

Citing the tighter credit standards that have been introduced by the MAS, Mr Tharman said the new initiative would address legacy debt problems and help borrowers who are already over-extended to reduce their debts in an orderly manner.

Last year, the MAS warned that many consumers may have over-extended themselves because of the cheap cost of funds and stretched loan tenures. Property loans were singled out as the main cause of growing household debt, leading to the introduction of tightened loan-to-value ratios for such loans and other measures.

It was also announced last year that financial institutions will not grant further unsecured credit to individuals if their total unsecured debt exceeds their annual income for three consecutive months. This will take effect from June and Mr Kuo said he expects CCS to see a spike in the number of people seeking help as a result. “With the new regulations, individuals exceeding the new limit ... will have their (credit) facilities frozen (and) be unable to borrow anymore, unless they pay back any excess above the regulatory limit,” he said.