Parliamentary Replies
Published Date: 05 July 2022

Reply to Parliamentary Question on Singaporeans’ exposure to unsecured consumer credit and other forms of lending




Date: For Parliament Sitting on 5 July 2022

Name and Constituency of Member of Parliament

Dr Tan Wu Meng, MP, Jurong GRC


To ask the Prime Minister (a) how does MAS assess Singaporeans’ exposure to unsecured consumer credit and other forms of lending which may take place outside the purview of financial institutions regulated by MAS; (b) whether MAS studies scenarios in which the total debt servicing ratio may underestimate household exposure; and (c) whether stress test simulations are conducted to assess household vulnerability, especially for households with limited means and, if so, what are the findings.

Answer by Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:

1. Financial institutions (FIs) regulated by MAS provide about 98% of all credit extended to Singapore households. The remaining 2% includes credit extended by licensed moneylenders regulated by the Ministry of Law, hire-purchase agreements regulated by Ministry of Trade and Industry, and credit-co-operatives overseen by the Ministry of Culture, Community and Youth. 

2. These government agencies have coordinated to implement safeguards on consumer credit, guided by the shared objective of discouraging consumers from spending beyond their means. This includes the application of caps to the maximum amount of unsecured borrowings that an individual can obtain from an FI, a licensed moneylender, or a credit co-operative.

3. The Total Debt Servicing Ratio (TDSR) framework looks at a borrower’s monthly expenses on credit facilities extended by FIs and non-FIs, including mortgages, car loans, and unsecured debt as a proportion of the borrower’s income. The framework is designed and calibrated to ensure that the calculated TDSR provides a conservative estimate of borrowers’ debt servicing ability across a variety of scenarios.

a. FIs are required to ascertain borrowers’ total debt obligations based on credit bureau checks and the latest available statements for loans taken up with FIs and non-FIs. 

b. A borrower’s income is also estimated conservatively, with haircuts applied to variable income and eligible financial assets. 

c. The interest rate used to calculate property loan repayments under the TDSR is the higher of 3.5% or the prevailing market rate. This provides a buffer for borrowers to service their mortgages amidst a rise in interest rates, such as what we are seeing now. 

4. MAS additionally conducts stress tests to assess the resilience of household debt serviceability under adverse scenarios of sharp interest rate hikes and significant income losses.  The results suggest that most households should still be able to service their debts but there will be a small segment of households which may be more constrained by rising interest rates. Such vulnerable borrowers should approach their lenders early to explore possible loan refinancing and repayment solutions.
5. Borrowers should exercise caution and be sure of their ability to service their loans before making additional financial commitments.