Singapore’s central bank tightens rule against excessive unsecured borrowing

The Monetary Authority of Singapore (MAS) will roll out a new measure on Jan 1 next year to help borrowers avoid accumulating excessive unsecured debts.

In a statement on Friday (Dec 15), MAS said the Credit Limit Management Measure will cap the additional unsecured credit that a financial institution may extend to a borrower whose outstanding unsecured debts exceed six times his monthly salary.

It will complement the existing industry-wide borrowing limit.

Unsecured credit facilities include credit cards, personal loans and overdrafts.

Under the new measure, where an individual’s outstanding unsecured debts exceed six times his monthly income, a financial institution will not be allowed to grant any increase in credit limit or any new unsecured credit facilities, that will cause the individual’s total credit limit to exceed 12 times his monthly salary.

It will not require borrowers to reduce the credit limit of their existing credit facilities.

MAS said the overall unsecured credit situation in Singapore “remains healthy” and the vast majority of unsecured borrowers are borrowing within prudent limits.

Since the industry-wide borrowing limit was introduced in June 2015, the number of highly indebted borrowers – or those with outstanding unsecured debts exceeding their annual income – has come down by about 21,000, from 5% to below 4% of total unsecured borrowers.

However, since January this year, an average of about 4,000 borrowers per month have increased their unsecured debts to above 12 times their monthly income compared to the previous month.

The industry-wide borrowing limit prevents an individual from obtaining new unsecured credit and drawing down on his existing unsecured credit facilities once his aggregate interest-bearing unsecured debts exceeds the prevailing borrowing limit for three consecutive months.

This limit is currently 18 times a borrower’s monthly income but it will be lowered to 12 months from June 1, 2019.