The Monetary Authority of Singapore (MAS) in Dec 2017 announced a new measure to help users of unsecured loans avoid accumulating excessive debts. The new measure called 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.
By: Phoenix Lee/
This new measure which curbs the accumulation of unsecured loans took effect on 1 January 2018 and complements the existing industry-wide borrowing limit.
The industry-wide borrowing limit announced in September 2013 prohibits financial institutions (FIs) from granting further unsecured credit to a borrower whose outstanding unsecured debt across all FIs exceeds 12 times his monthly income for three consecutive months.
With the more stringent more stringent restrictions on unsecured loans, FIs will not be allowed to grant further unsecured credit to an individual whose unsecured borrowings exceed the prevailing borrowing limit for three consecutive months.
With the introduction of the measures announced in 2013, MAS reminded borrowers of personal loans to take active steps to manage their unsecured debts so that they do not become unsustainable. Although most borrowers do not spend or borrow beyond their means, some may need help to reduce their debts gradually. It also encouraged those who may be affected by the more stringent personal loan restrictions to act early and approach your FIs or CCS for assistance.
The more stringent restrictions in the form of borrowing limit applies only to interest bearing balances incurred on unsecured credit facilities such as credit cards and unsecured personal loans. This includes amounts rolled over on credit cards and balances outstanding on unsecured loans that accrue interest.
As for the Credit Limit Management Measure, it aims to preemptively cap the total credit limit of users of unsecured loans who have significant outstanding unsecured debts, before they are affected by the industry-wide borrowing limit.
Under the Credit Limit Management Measure, where an individual’s outstanding unsecured debts exceeds six times their monthly income, an FI will not be allowed to grant:
- any increase in credit limit; or
- any new unsecured credit facilities
that will cause the individual’s total credit limit to exceed 12 times their monthly income. Users of unsecured loans can continue to draw on their existing unutilised unsecured credit facilities. The new measure will not require borrowers to reduce the credit limit of their existing credit facilities.
This refers to a borrower’s credit limits for all unsecured credit facilities (including credit cards, personal loans and overdrafts) summed up across all FIs.
The new measure applies to interest-bearing balances of unsecured credit facilities such as credit cards, personal loans, and overdrafts. It does not apply to secured credit facilities such as housing loans and motor vehicle loans, as well as loans for medical, education or business purposes.
MAS said the overall unsecured credit situation in Singapore remains healthy but some borrowers continue to increase their indebtedness. It added 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.
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. This represents new highly indebted borrowers. On average, a larger number of borrowers reduce their unsecured debts to below 12 times their monthly income, leading to the overall net decrease in the number of borrowers.
With the introduction of Credit Limit Management Measure MAS has lowered the threshold of unsecured loans from 12 times to 6 times of an individual’s monthly income to prevent debt creep earlier.
Ms Loo Siew Yee, MAS Assistant Managing Director (Policy, Risk & Surveillance), said at the announcement of Credit Limit Management Measure: “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.”
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