Reply to PQ on the Eligibility Criteria of Personal Credit Lines to Individuals
Question No. 850 Notice Paper No. 276 of 2008 For Oral Answer
Date: For Parliament Sitting on 17 November 2008
Name and Constituency of Member of Parliament Mr Seah Kian Peng, MP for Marine Parade GRC
Question Q850: To ask the Senior Minister in light of the significant increase and accumulation of debts incurred by individuals in the last 12 months, whether MAS will review the eligibility criteria of personal credit lines being extended to these individuals.
Mr Tharman Shanmugaratnam, Minister for Finance: 1. Total consumer loans grew 10% year-on-year in September 2008. Two-thirds of the increase over this period was due to an increase in housing loans, which is unsurprising given the buoyant property market in 2006 and 2007. Housing loans are secured on the property being financed and are subject to the Monetary Authority of Singapore’s (MAS) prudential requirements on their maximum loan-to-value ratios. In addition, banks will conduct rigorous credit assessments and consider the risk profile of the borrower, his debt servicing to income ratio, and the value of the collateral before granting a housing loan. Car loans, also secured credit, have only increased marginally over the same period while share financing has fallen.
2. As for unsecured credit to individuals, total outstanding balances on credit and charge cards have grown over the past 12 months, consistent with growth in previous years. However, reflecting the use of credit and charge cards more as convenient payment instruments than anything else, the percentage of outstanding balances rolled over for more than one month has remained around 15%. Moreover, the charge-off rate, which measures credit card debt written off by banks and card issuers as a percentage of the rollover balance, remains low at 3% to 4%.
3. MAS' current rules on the eligibility criteria for personal unsecured credit are not too loose, and in fact stricter than in most other countries. Firstly, applicants for credit cards and other unsecured credit facilities must meet the minimum annual income requirement of $30,000. Secondly, the maximum credit that can be granted by a financial institution to an individual on a credit card is limited to twice his monthly income. Other unsecured credit facilities granted to an individual are similarly capped by a separate limit of twice the monthly income.
4. The increase in consumer loans that we have seen has been in line with economic growth and the upturn in property purchases in recent years, and is not in itself a cause for concern. We would of course be concerned if financial institutions are lending without regard for credit standards and risk assessment, and borrowers are taking credit without considering if they can afford it. But the prudential and lending criteria employed by financial institutions and required by MAS address these concerns by maintaining sound lending standards at all times. The MoneySENSE national financial education programme is also being expanded on the ground, so that we can help Singaporeans acquire the skills and knowledge to better manage their day-to-day finances, make prudent investments and plan for their longer-term needs.