To ask the
Prime Minister (a) what is the rationale for the rule whereby banks only deny
further credit to individuals when their aggregate debt across all financial
institutions exceed 12 months' of their income for 90 days or more; and (b) how
does this rule prevent borrowers from racking up huge debts beyond their
Answer by Mr
Tharman Shanmugaratnam, Deputy Prime Minister and Minister in charge of MAS:
1In September this year, MAS introduced a limit on an individual’s total unsecured debt across financial institutions. This new limit will come into effect in June 2015. We set the limit at 12 months’ income for a start, so as to give borrowers who are already over-leveraged time to adjust. For instance, according to Credit Counselling Singapore, the average debt level of individuals seeking its help exceeds 24 months of their income. MAS expects financial institutions to work actively with their affected customers to take steps to bring down their unsecured debt levels. MAS will monitor the situation and is prepared to lower the limit over time if necessary.
2The 12-month limit is however not the only safeguard against borrowers accumulating too much debt. We also introduced other policy changes for credit cards and unsecured credit facilities in September, which take effect progressively from December this year. One of the key changes is to require financial institutions to review, a borrower’s total debt and credit limits with all financial institutions before granting a new credit card or unsecured credit facility, or increasing the credit limit on such facilities. This will ensure that financial institutions do not extend unsecured credit to an individual beyond the limit of 12 months income.
3Ultimately, everyone has to take personal responsibility for their own finances, and not get into debt-servicing obligations that leave little buffer in their incomes. The MoneySENSE national financial education programme has stepped up its education of consumers on factors to consider before taking on debt.