Assistance and Counselling for Payment of Loan Instalments and Other Debt

Mr Kwek Hian Chuan Henry asked the Prime Minister whether MAS will consider proactive measures that will help individuals/businesses to understand credit restructuring and credit counselling programmes since many will be facing financial difficulties due to the COVID-19 situation.

As part of the Government's response to the COVID-19 pandemic, the Monetary Authority of Singapore (MAS) has been closely monitoring market developments and engaging the banks on a comprehensive range of relief measures for borrowers.

MAS does not intervene directly in housing loan pricing as interest rates are determined by the market. But MAS expects housing loan interest rates to be revised downwards in a fair manner where this is consistent with sustained trends in banks' cost of funding for such loans.

How interest rates on housing loans fluctuate also depends on the loan terms that borrowers had chosen. Currently, about a quarter of borrowers are on housing loans pegged to the Singapore Interbank Offered Rate (SIBOR) or Swap Offered Rate (SOR). These borrowers would already have seen interest rates for their loans come down over the past months, as falling interbank interest rates are passed on directly to these borrowers.

Slightly over half of borrowers have housing loans pegged to board rates or linked to fixed deposit rates. These rates generally change more slowly than SIBOR or SOR. So, borrowers are less adversely affected when market interest rates rise quickly, but also will benefit less when market interest rates fall quickly.

The remaining borrowers largely chose to be on fixed interest rates for the first two or three years of their loan. These loans do not adjust to changes in market interest rates, but provide certainty and stability.

Notwithstanding these differences in interest structures, borrowers may refinance their housing loans to take advantage of lower interest rates. The current rates for new housing loans are between 1.4% and 1.8% for the first year, which are lower than the range of 1.8% to 2.3% last year. However, as a matter of practice, banks will charge a fee to borrowers wishing to refinance their housing loans when they are still within the lock-in period. If there are borrowers who have difficulty paying the fee, they can put up an appeal and I am sure the banks will consider on a case-by-case basis.

MAS also facilitates the refinancing of property loans should borrowers choose to do so, by not subjecting them to the total debt servicing ratio (TDSR), mortgage servicing ratio (MSR) and loan-to-value (LTV) limits for owner-occupied residential properties. As a temporary debt relief measure, MAS has also waived the TDSR and MSR requirements for refinancing loans for investment residential and non-residential properties.

Mr Kwek also asked whether MAS will help individuals and businesses understand credit restructuring and credit counselling programmes.

Our priority has been to prevent borrowers from encountering repayment difficulties. MAS has been working with the financial industry to help individual and SME borrowers with a wide range of credit relief measures, without these impacting the borrower's credit record. For example, individuals will be able to defer payments on their mortgage loans. Likewise, SME borrowers may opt to defer principal repayment on their secured loans.

As at 10 May 2020, close to 90% of the 31,300 applications for mortgage loan payment deferment have been approved. Similarly, more than 90% of the 3,300 applications for SME secured loans deferment have been approved.

MAS has also worked with financial institutions and industry associations to promote awareness of the relief measures, and to help borrowers understand the costs and benefits of each relief measure so that they can make informed decisions.

There will be borrowers who find the relief measures insufficient. They will have to approach their banks to explore possible solutions, including restructuring their debts. They may also approach the Credit Counselling Singapore, or CCS, for debt management advice and counselling. CCS has collaborated with banks to offer the customised debt management plan for such borrowers.

To help borrowers on the debt management plans and who are affected by COVID-19, CCS will also assist with restructuring their repayment plans. On an ongoing basis, MoneySense, Singapore's national financial education programme, actively educates the public on debt management options.

MAS will continue to work closely with the financial industry to support individuals and businesses through this crisis, and to educate borrowers on the relief measures available to them.

I thank the Minister for a comprehensive response. I am very encouraged to hear about the high percentage of loans that were deferred. Two clarifying questions. The first is, regarding the loan deferment, it will help right now, but in maybe six months' time, after the temporary relief Bill term ends, there will likely be a lot more defaults. And so one suggestion I have heard from my resident is, can we get more jobs from SGUnited to help out with Credit Counselling Singapore as a temporary measure to help deal with the additional workload, because the more people we can help to restructure the debts, the better it will be for everybody including the banks in the long run. That is one suggestion.

The other suggestion is about the rates. My residents hope that MAS continues to exercise vigilance on the rates. They pointed out to me a particular observation. The observation is that while SIBOR rates have gone down, rightfully so, the credit spreads have gone up recently at a very short time period. That means the SIBOR plus the bank spread. That does not seem to gel with the default rates that does not seem to be increasing rapidly. So, they do hope MAS can look at that, as well as the board rates movement very carefully.

On the first issue, I fully agree with Mr Henry Kwek. I think moving forward, the labour market is going to be quite soft, unemployment is likely to go up. If the private sector is not hiring enough, one area we look to is the Public Service including Credit Counselling Singapore, and I think if there are opportunities there, the Government should be prepared to put in money and we can see how to create more of such jobs, including in the Public Service, such as what the Member had suggested.

On SIBOR rates, I do have to look into the details. I do not see any particular reason, as the Member mentioned, that the credit spread has gone up. In fact, there have been many schemes. There have been schemes run by both ESG or MTI and MAS to make sure that the credit spread is controlled, with the Government putting in and taking 90% of the risk. But if the Member is referring to mortgage rates, that could have a different market mechanism. On the whole, from our observation, interest rates ought to be coming down and it really depends on the kind of loans that you have taken, whether it is a fixed rate, or whether it is a floating rate, and I think that will also affect. Whatever it is, when a bank decides to adjust interest rates, always give enough time for your customers to be able to refinance the loans and without penalties. And I think that is what MAS will always encourage all banks to do.