Consumer debt: In ‘good financial shape’?

Consumer debt: In ‘good financial shape’?

by: Leong Sze Hian, Roy Ngerng and Ravi Philemon


“Singaporean households in good financial shape”?

The Acting Minister for Culture, Community and Youth, Lawrence Wong, said “Singaporean households are in good financial shape and even those who may have over-stretched themselves are unlikely to default on their loans should interest rates rise.”

Mr Wong also revealed in Parliament that “only 5 to 10 per cent of property loan borrowers here are servicing debts amounting to over 60 per cent of their monthly incomes.”


Let the numbers do the talking?

In our opinion, the only objective, and arguably the best indicators of overall general consumer debt healthiness (or financial shape, as some have called it) are the statistics on debts. And in particular, the delinquency statistics. For example, how many HDB loans are in arrears? How many HDB flats have been foreclosed? How many have been forced to sell in the open market because they could not service their mortgage?


Don’t have HDB bank loans’ statistics?

Here’s the problem. The HDB does not currently have the statistics on HDB bank loans’ delinquency and foreclosures. This is unlike the past, where such statistics were available.

At its historical peak and before banks were allowed to offer HDB bank loans from 1 January 2003, the number of HDB households provided with financial assistance by the HDB was over 40,000.
What are the figures today? Putting out such information in the pubic domain will allow the general public to draw a better conclusion about the financial shape of the households in Singapore.


Credit card statistics?

Next, let’s look at the credit card statistics. The average monthly credit card balance has risen from $4,591 in 2008 to $5,488 today, which we believe is a record high (“More S’poreans taking multiple loans“, Straits Times, Jul 30, 2013).

What is perhaps more alarming is that the delinquency rate- where one’s credit card payments are 30 or more days overdue – was 4.95 per cent in the three months to March of this year (“Good debt, bad debt: Credit cards, car loan most common debts for young“, Straits Times, Jul 2. 2013).

With about 1.5 million credit card account holders, does this mean that about 74,250 people had debts which were overdue for 30 or more days?

This is a significant statistic. Debts which are overdue by more than 30 days at the typical interest of 24 per cent per annum – plus monthly penalty fees – may indicate that the credit card holder may be in dire financial circumstances.The percentage of consumers that missed at least one payment on one or more of their credit card accounts in a year was 12.55 per cent in 2011.

So, if this rate is about the same now, does it mean that about 188,250 people missed at least one payment or more – at 24 per cent interest plus penalty charges?


Unlicensed Moneylending

Despite stricter enforcement actions, reported cases of unlicensed moneylending harassment activities remain relatively high. In 2004, there were 5809 such reported cases, while in 2012, 8988 harassments linked to illegal moneylending were reported.

Even if year-on-year the number of unlicensed moneylending harassment cases registered a drop of 2788 cases from 2011, one has to wonder if such reports have dropped because the harassments have become more sophisticated, making some borrowers feel that they are not being badgered when they actually are.

A newspaper article for example, reported how illegal moneylenders are recruiting real estate agents who will in turn force debtors to sell their houses and force them to handover the cash over valuation to service the loans. Debtors will be less likely to report such harassments as compared to violent harassments like splashing paint and vandalising cars. They may feel that the creditors are taking reasonable steps to recover the money that is owed.

Minister for Home Affairs, Mr Teo Chee Hean replied in Parliament in March last year about how unlicensed moneylending syndicates now don’t operate within Singapore’s jurisdiction, making detection and arrests more difficult. Will debtors be more reluctant to report illegal moneylenders who may be out of Singapore’s jurisdiction and so are less likely to be arrested, fearing repercussions?


Pawn shop loans increase 43%?

According to the Department of Statistics, the number of pledges at pawnshops increased from 3.5m to 4m, from 2011 to 2012. The amount of loans jumped from 4.9m to 7.1 million during the same period – an increase of a whopping 43 per cent!

If you look at the trend over the years according to the Yearbook of Statistics Singapore 2013, you can also see that this is a rising trend. In fact, over the last 3 years, both the number of pledges (Chart 1) and the amount of loans (Chart 2) have shot up.


Chart 1


Chart 2

“Good financial shape”?

According to news reports, Mr Wong ”reiterated that the profile of borrowers suggests that they are not necessarily in the vulnerable category, as their larger buffer, in terms of household income and assets, means that they would be at lower risk of default.”

Mr Wong’s reply is perplexing, considering that the Monetary Authority of Singapore (MAS) “had expressed concern (in July) at the growing mountain of household debt and surging property prices, saying they posed “significant risks” to the country’s financial system.”

Ravi Menon, managing director of the MAS, had also called the build-up in household debt ”worrying”.

Mr Menon said, “The combination of low interest rates, growing leverage and surging property prices poses significant risks to financial stability.”He added that an estimated five to 10 per cent of borrowers in Singapore “have probably over-leveraged on their property purchases.”

“When interest rates rise, long before any bank gets into trouble, some households will,” he said.

In fact, further back in March this year, the MAS had already sounded a similar warning.

Taimur Baig, economist at Deutsche Bank, expressed the same sentiment. “It’s definitely a concern, any country that has household debt at a high level will face problems when interest rates go up.”Even the Straits Times reported in March that “the trends are more worrying.”

“Household assets grew by 7.8 per cent year-on-year in the third quarter of last year, but household debt grew by a bigger 10.4 per cent, driven largely by housing loans,” the paper said.

It is a point affirmed by the Standard Chartered Bank’s SCout research report in early July this year.

“[Household] debt to GDP has risen steadily to 75% of GDP currently from 55% in 2010, 45% in 2005 and 38% in 2000,” the report said.

In fact, “household leverage is (also said to be) high relative to other countries in the region, at 75% of GDP. Housing loans account for the bulk of household debt, at 74% of total consumer loans.”

Also, housing loan growth has jumped by 12.1% from 2000-12; and accelerated to 15.8% from 2006-12.

Two weeks after the SCout report was released, Moody’s Investors Service released a report which downgraded the outlook for Singapore’s banking system from stable to negative. Part of the reason or the downgrade was that “household debt increased to 77.2% of GDP as of March 2013 from 64.4% at end-2007.”

After reading all the above statistics and reports from various quarters, it is worrying that Mr Wong seemed to have made light of the issue of household debt.

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