Singapore unveils fresh step to curb unsecured borrowing by individuals

SINGAPORE, Dec 15 (Reuters) - Singapore’s central bank announced a new measure on Friday aimed at preventing individuals from accumulating excessive unsecured debts.

The step will cap the additional unsecured credit that a financial institution can extend to borrowers whose outstanding unsecured debts exceed six times their monthly income, the Monetary Authority of Singapore (MAS) said.

Under the new rules, which take effect from Jan. 1, 2018, financial institutions will not be allowed to grant any increase in credit limits, or any new unsecured credit facilities that will cause the total credit limit of such borrowers to exceed 12 times their monthly income, the MAS said.

Such borrowers will still be able to draw on their existing unutilised unsecured credit facilities, the central bank said.

“The measure announced today is pre-emptive in nature - it will help borrowers manage their unsecured debts early and avoid becoming highly indebted,” MAS assistant managing director Loo Siew Yee said in a statement.

Roughly 60,000 borrowers will be targeted by the new regulation, which applies to interest-bearing balances of unsecured credit facilities such as credit cards, personal loans and overdrafts.

The measure won’t apply to secured credit facilities such as housing loans and motor vehicle loans, and also excludes loans for medical, education or business purposes.

The tighter rule complements an existing industry-wide borrowing limit. That ceiling prevents individuals from obtaining new unsecured credit and drawing down on their existing unsecured credit facilities once their aggregate interest-bearing unsecured debts exceed the prevailing borrowing limit for three straight months.

The borrowing limit is currently 18 times a borrower’s monthly income, and will be lowered to 12 times from June 2019.

Since the introduction of the industry-wide borrowing limit in June 2015, the number of highly indebted borrowers whose outstanding unsecured debts exceed their annual income has fallen by about 21,000, the MAS said.

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

“The overall unsecured credit situation in Singapore remains healthy but some borrowers continue to increase their indebtedness. The vast majority of unsecured borrowers are borrowing within prudent limits,” the central bank said. (Reporting by Masayuki Kitano; Editing by Shri Navaratnam)