Financially-distressed Consumers Seeking Debt Management Assistance and Respite Measures for Consumers and Businesses With Short-term Liquidity Issues

The number of financially-distressed consumers who have sought assistance from banks is not high and has been decreasing over the past year. Broader indicators also suggest that the household and corporate debt situation in Singapore remains resilient on the whole.

The proportion of non-performing mortgages has remained low, at less than 1% last year. And the Monetary Authority of Singapore's (MAS) stress test suggests that the median household's mortgage servicing ratio should remain manageable, even under scenarios of significantly higher interest rates or lower incomes.

The proportion of non-performing corporate loans has also remained low, at about 2.6%. Here, too, MAS' stress test suggests that debt servicing of Singapore-listed firms is likely to remain manageable as interest rates rise, with most firms having sufficient earnings to cover their interest expenses and cash reserves to provide buffers.

Industry-wide credit relief measures have been gradually withdrawn, in line with the broadening of the economic recovery and the steady decline in the number of applications for assistance. These measures, introduced in March 2020, were meant to provide short-term relief and support to individuals and SMEs, as stringent public health measures led to temporary cashflow difficulties.

Conversely, recent market-driven interest rate increases have been accompanied by continuing income growth. This mitigates their impact on the debt-servicing ability of most borrowers. Indeed, the debt relief schemes introduced during the pandemic are not meant to insulate borrowers from the normalisation of interest rates.

However, a small segment of households, especially those with higher leverages, could be more constrained by higher interest rates. So, they should approach their lenders early to explore possible loan refinancing and repayment solutions.

For financially-distressed HDB homeowners, MAS has worked with MND, HDB, MOM and financial institutions to establish standardised interventions when late repayments occur. These include potential loan restructuring solutions, early referrals to appropriate social service agencies and, in certain limited cases, helping them obtain alternative HDB accommodation where foreclosures are unavoidable. Likewise, companies with low net profit margins should approach their lenders early to work out suitable loan repayment schemes and plans.

More broadly, everyone should exercise caution in their new borrowings. Households and businesses should plan for future and further interest rate increases and be sure of their ability to service their loans before making additional long-term financial commitments.

Mr Speaker, I would like to thank the Minister of State for his detailed answers. I have two supplementary questions. First, the reason why I am asking this question is because I am concerned about the slow, but then, eventually, rapid boil from the rising interest rates, in particular, the impact on the rising cash outlays by households and businesses, particularly from the cascading effect of the interest rate.

So, my first question: is it possible to assess the rising cash outflows and its impact on households from the rising interest rates for this year and next?

The second question is probably what is the proportion of Singaporean households vulnerable and likely to turn vulnerable at the margin, rather than currently vulnerable, as mentioned by the Minister of State. And what can they do now as Singaporean households and businesses mostly affected by the potentially slow, but then, rapidly boiling effects of rising interest rates, as we go forward beyond the second half of this year?

I thank Mr Saktiandi Supaat for his supplementary question. Most households should still be able to service their mortgages and other debt obligations, as Singapore's domestic interest rates pick up alongside global rates. I would like to frame my answer, quite helpfully, with regard to the mortgage as well as the total debt servicing ratio, which I think covers quite a lot of what the Member is concerned about.

The total debt servicing ratio framework (TDSR) captures a borrower's monthly expenses on all types of debt, including mortgages, car loans and unsecured debt, as a proportion of income. The overall debt servicing ability of households has, thus far, remained manageable, with the median TDSR being 43% last year. This is well within the recently tightened TDSR threshold of 55%. So, 43% median TDSR last year and the tightened TDSR threshold at 55%.

But, beyond mortgages, MAS has also imposed rules for car loans, as well as unsecured credit, to encourage prudent borrowing. This has helped the credit profile across these consumer loan products to remain healthy. The proportion of credit card rollover balances, as a share of GDP, for example, has declined since the pre-pandemic period from 1.3% in Q4 2019, to about 1% as at end 2021, and the charge-off rates have similarly decreased from 6.3% in Q4 2019, to 4.4% as at end 2021. In addition, only 0.01% of borrowers have defaulted on car loans granted by financial institutions, as at end 2021.

For the Member's second question on what consumers can do, I think that, generally, consumers can seek assistance for their outstanding debt. For example, consumers in financial distress can seek help from Credit Counselling Singapore for debt management assistance or consider taking up commercial products, such as debt consolidation plans, that may alleviate their repayment burdens.

I thank the Minister of State for his answer. Can I ask if MAS coordinates with other agencies in the Government to look at the exposure of households to unsecured loans provided by retailers, or consumer retailers since this would be part of the broader landscape of exposure, especially with concerns about economic shocks coming from outside?

I thank Dr Tan Wu Meng for his supplementary question. The answer is yes. We have worked with Credit Counselling Singapore and also gone upstream with regard to ensuring that consumers and borrowers have increased their financial literacy, in terms of new kinds of products that the Member has mentioned.

Consumers, borrowers, members of the public can go on to MoneySense.gov.sg – that is a website that we continue to build at MAS – to help consumers understand their credit profiles, what kind of products are available on the market and also to exercise prudence in their borrowing, particularly in an environment of heightened interest rates.