Letters to Editor
Published Date: 19 July 2013

Response to "Debt ratio loophole?" - ST Forum, 17 July 2013

18 July 2013

The Editor
ST Forum

Dear Editor,

Mr Tan Teck Leng is correct to say that the government is concerned about households “taking on a greater debt burden than they can afford” (“Debt ratio loophole?”, ST Forum, 17 July 2013).

To put the issue in context, housing loans make up more than 70% of household debt. This is why MAS decided to apply the Total Debt Servicing Ratio (TDSR) framework to the granting and re-financing of property-related loans for a start. A large  property-related loan can lead to serious over-borrowing, and applying  the TDSR will mitigate that risk. 

To ensure financial prudence for non-property related loans, MAS has put other measures in place.  For example, we recently introduced financing restrictions on loans for the purchase of motor vehicles. We have longstanding rules that cap credit card and  other unsecured credit facilities taken up by an individual  with a financial institution (FI), at four times the individual’s  monthly income. MAS has also consulted the public on additional rules to promote the responsible use of credit cards and unsecured credit.

As other personal loans are granted frequently but do not form  a large share  of banks’ loan books by value, applying the TDSR framework each time any of these other loans is given could impose a disproportionate resource burden on FIs. It may also have the unintended effect of driving borrowing out of the banking system. 

MAS however expects FIs to take a holistic and prudent approach in their credit assessment of borrowers when granting both property and non-property related loans.  As DPM Tharman Shanmugaratnam said recently, while we do not intend to extend the TDSR to other types of loans anytime soon, the banks should apply the principle of holistic assessment of the borrower for all loans. MAS’ current approach will therefore rest on supervision, rather than on further extension of the TDSR rule to non-property  loans. MAS will continue to monitor the lending practices of FIs to ensure they maintain prudent practices, and reserves the option of applying the TDSR framework more broadly if the need arises in future.  

Angelina Fernandez
Director (Communications)
Monetary Authority of Singapore