Households' Exposure to Unsecured Consumer Credit and Other Forms of Lending outside Purview of Financial Institutions Regulated by MAS

Debated in Parliament on 5 Jul 2022.

Summary written by AI (learn more)

MAS estimates that financial institutions it regulates provide about 98% of household credit, with the remaining 2% from licensed moneylenders, hire-purchase agreements, and credit co-operatives, all subject to coordinated safeguards like borrowing caps.
The Total Debt Servicing Ratio (TDSR) framework conservatively assesses borrowers' debt obligations by including all credit facilities, applying income haircuts, and using a higher interest rate buffer for mortgage calculations.
MAS conducts stress tests on household debt serviceability under adverse scenarios like sharp interest rate hikes and income losses, which indicate most households can manage but a small segment may face constraints.
Vulnerable borrowers are advised to approach lenders early for refinancing or repayment solutions, and households are reminded to exercise caution before taking on additional financial commitments.

Questions identified by AI (learn more)

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Tan Wu Meng

Dr Tan Wu Meng asked 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.

Summary written by AI (learn more)

MAS estimates that financial institutions it regulates provide about 98% of household credit, with the remaining 2% from licensed moneylenders, hire-purchase agreements, and credit co-operatives, all subject to coordinated safeguards like borrowing caps.
The Total Debt Servicing Ratio (TDSR) framework conservatively assesses borrowers' debt obligations by including all credit facilities, applying income haircuts, and using a higher interest rate buffer for mortgage calculations.
MAS conducts stress tests on household debt serviceability under adverse scenarios like sharp interest rate hikes and income losses, which indicate most households can manage but a small segment may face constraints.
Vulnerable borrowers are advised to approach lenders early for refinancing or repayment solutions, and households are reminded to exercise caution before taking on additional financial commitments.

Questions identified by AI (learn more)

Households' Exposure to Unsecured Consumer Credit and Other Forms of Lending outside Purview of Financial Institutions Regulated by MAS | PAPERCUTS

Households' Exposure to Unsecured Consumer Credit and Other Forms of Lending outside Purview of Financial Institutions Regulated by MAS

Debated in Parliament on 5 Jul 2022.

Summary written by AI (learn more)

MAS estimates that financial institutions it regulates provide about 98% of household credit, with the remaining 2% from licensed moneylenders, hire-purchase agreements, and credit co-operatives, all subject to coordinated safeguards like borrowing caps.
The Total Debt Servicing Ratio (TDSR) framework conservatively assesses borrowers' debt obligations by including all credit facilities, applying income haircuts, and using a higher interest rate buffer for mortgage calculations.
MAS conducts stress tests on household debt serviceability under adverse scenarios like sharp interest rate hikes and income losses, which indicate most households can manage but a small segment may face constraints.
Vulnerable borrowers are advised to approach lenders early for refinancing or repayment solutions, and households are reminded to exercise caution before taking on additional financial commitments.

Questions identified by AI (learn more)

Full Transcript

Tan Wu Meng

Summary written by AI (learn more)

MAS estimates that financial institutions it regulates provide about 98% of household credit, with the remaining 2% from licensed moneylenders, hire-purchase agreements, and credit co-operatives, all subject to coordinated safeguards like borrowing caps.
The Total Debt Servicing Ratio (TDSR) framework conservatively assesses borrowers' debt obligations by including all credit facilities, applying income haircuts, and using a higher interest rate buffer for mortgage calculations.
MAS conducts stress tests on household debt serviceability under adverse scenarios like sharp interest rate hikes and income losses, which indicate most households can manage but a small segment may face constraints.
Vulnerable borrowers are advised to approach lenders early for refinancing or repayment solutions, and households are reminded to exercise caution before taking on additional financial commitments.

Questions identified by AI (learn more)

Tharman Shanmugaratnam (for the Prime Minister)

Financial institutions (FIs) regulated by the Monetary Authority of Singapore (MAS) provide about 98% of all credit extended to Singapore households. The remaining 2% includes credit extended by licensed moneylenders regulated by MinLaw, hire-purchase agreements regulated by MTI and credit-co-operatives overseen by MCCY.

These Government agencies have coordinated to implement safeguards on consumer credit, guided by the shared objective of discouraging consumers from spending beyond their means. These include 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.

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.

One, 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.

Two, a borrower's income is also estimated conservatively, with haircuts applied to variable income and eligible financial assets.

Three, the interest rate used to calculate property loan repayments under 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.

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.

Borrowers should exercise caution and be sure of their ability to service their loans before making additional financial commitments.

Households' Exposure to Unsecured Consumer Credit and Other Forms of Lending outside Purview of Financial Institutions Regulated by MAS

Summary

Questions Identified

Full Transcript

Tan Wu Meng

Summary

Questions Identified

Households' Exposure to Unsecured Consumer Credit and Other Forms of Lending outside Purview of Financial Institutions Regulated by MAS

Summary

Questions Identified

Full Transcript

Tan Wu Meng

Summary

Questions Identified

Tharman Shanmugaratnam (for the Prime Minister)