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Singaporean households still in ‘good financial shape’

SINGAPORE — Despite recent warnings about rising household debt levels, Acting Minister for Culture, Community and Youth Lawrence Wong offered this reassurance yesterday: Overall, Singaporean households are in good financial shape and even those who may have over-stretched themselves are unlikely to default on their loans should interest rates rise.

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SINGAPORE — Despite recent warnings about rising household debt levels, Acting Minister for Culture, Community and Youth Lawrence Wong offered this reassurance yesterday: Overall, Singaporean households are in good financial shape and even those who may have over-stretched themselves are unlikely to default on their loans should interest rates rise.

Mr Wong, who is also a Director on the board of the Monetary Authority of Singapore (MAS), told Parliament that only 5 to 10 per cent of property loan borrowers here are servicing debts amounting to over 60 per cent of their monthly incomes.

“Most of these borrowers have above-average income levels. The majority took up private housing loans and are only servicing one housing loan, so they are likely to have a larger absolute buffer in income and assets,” he said.

Mr Wong, who was responding on behalf of the Prime Minister to two parliamentary questions on rising household debt, noted that the debt was 2.1 times that of income last year, compared to 2.6 times in the middle of the last decade.

“Overall, households are currently no more leveraged than they have been in the last decade,” he said, adding that on the whole, the balance sheets are “all in good shape”, even excluding the value of property assets, cash and deposits.

The problem, he pointed out, lies with “a segment of borrowers” — those households that are likely to have borrowed too much, lulled by an extended period of lower interest rates.

Last month, the MAS said the rising level of household debt here is worrying and it is important that it acts now to curb excessive borrowing. The authority warned that many consumers may have over-extended themselves because of the cheap cost of funds and stretched loan tenures.

A Standard Chartered report released earlier last month also found that Singapore households are among the most heavily-indebted in Asia, with debt accounting for around 75 per cent of the gross domestic product, up from 55 per cent in 2010.

The report came just days after the MAS announced tighter property loan rules, under which financial institutions must ensure that property loans they grant do not push a borrower’s total debt obligation to above 60 per cent of his gross monthly income.

But Mr Wong noted yesterday that not all who over-leveraged will be at risk. “While over-leveraging will cause borrowers difficulty, especially when interest rates rise, this does not mean they will automatically default on their loans,” he said.

Still, Mr Wong urged caution for this group, who will face some difficulty when interest rates rise.

“Fundamentally, too, we will have to prevent a situation where credit supplied at low interest rates drives property prices, taking prices beyond levels that can be sustained by underlying income growth,” he said.

Nominated Member of Parliament Laurence Lien, in his supplementary question, felt the macro-level figures may not reveal what is happening at the micro-level. He asked if the Government has done more analysis of individual household balance sheets to check that the households are not just remaining solvent, but also saving enough for contingencies and retirement.

In his reply, Mr Wong reiterated that the profile of borrowers suggests that they are not necessarily in the vulnerable category, as their larger buffer, in terms of household income and assets, means that they would be at lower risk of default.

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