MAS: New measure to help individuals manage unsecured debts takes effect on 1 Jan 2018

The Monetary Authority of Singapore (MAS) has announced on Friday (15 December) a new measure to help borrowers avoid accumulating excessive unsecured debts which will take effect on 1 January 2018 and complements the existing industry-wide borrowing limit.

MAS states that the Credit Limit Management Measure will cap the additional unsecured credit that a financial institution (FI) may extend to a borrower whose outstanding unsecured debts exceed six times his monthly income.

MAS said that for borrowers with significant outstanding unsecured debts, the Credit Limit Management Measure aims to pre-emptively cap their total credit limit before they are affected by the industry-wide borrowing limit.

Under the new measure, where an individual’s outstanding unsecured debts exceeds six times their monthly income, an FI will not be allowed to grant:
i) any increase in credit limit; or
ii) any new unsecured credit facilities
that will cause the individual’s total credit limit to exceed 12 times their monthly income.

It said that borrowers can continue to draw on their existing unutilised unsecured credit facilities, noting that the new measure will not require borrowers to reduce the credit limit of their existing credit facilities.

MAS said that the overall unsecured credit situation in Singapore remains healthy but some borrowers continue to increase their indebtedness, noting that the vast majority of unsecured borrowers are borrowing within prudent limits.

“Since the introduction of the industry-wide borrowing limit in June 2015, the number of highly indebted borrowers – those with outstanding unsecured debts exceeding their annual income – has come down by about 21,000, from 5 per cent to below 4 per cent of total unsecured borrowers,” the authority said.

“However, since January 2017, an average of about 4,000 borrowers per month have increased their unsecured debts to above 12 times their monthly income compared to the previous month,” it added.

MAS said that the introduction of the Credit Limit Management Measure follows a public consultation conducted in September 2016.

It stressed that the authority has taken the public feedback into consideration and revised the proposals where appropriate. In particular, MAS has lowered the threshold of the Credit Limit Management Measure from 12 times to 6 times of an individual’s monthly income to prevent debt creep earlier.

MAS noted that details are set out in the responses to feedback received on the consultation paper.

Ms Loo Siew Yee, MAS Assistant Managing Director (Policy, Risk & Surveillance), said, “We are making steady progress in helping borrowers manage their unsecured debts. The industry-wide borrowing limit has reduced the overall number of highly indebted borrowers.”

“Several assistance schemes and repayment plans, such as the Debt Consolidation Plan launched earlier this year by The Association of Banks in Singapore, are available to help these borrowers work down their existing debts. The measure announced today is pre-emptive in nature – it will help borrowers manage their unsecured debts early and avoid becoming highly indebted,” she added.