Households' Exposure to Unsecured Consumer Credit and Other Forms of Lending outside Purview of Financial Institutions Regulated by MAS
Prime Minister's OfficeSpeakers
Summary
This question concerns Dr Tan Wu Meng’s inquiry into how the Monetary Authority of Singapore (MAS) assesses household exposure to credit outside its direct purview and the findings of vulnerability stress tests. Senior Minister Tharman Shanmugaratnam replied that MAS-regulated institutions provide 98% of credit, while the remaining debt from licensed moneylenders and cooperatives is managed through coordinated inter-agency borrowing caps. The Minister detailed that the Total Debt Servicing Ratio (TDSR) framework ensures conservative debt assessments by using credit bureau checks, applying income haircuts, and factoring in interest rate buffers. MAS conducts stress tests to evaluate household resilience against interest rate hikes and income loss, finding that most households are resilient while a small segment remains vulnerable. The Minister advised vulnerable borrowers to seek early assistance for loan refinancing and cautioned all consumers to ensure they can service their debts before undertaking new financial commitments.
Transcript
1 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.
Mr 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.