Proportion of Bankruptcies due to Credit Card Debts

20 Mr Melvin Yong Yik Chye asked the Prime Minister and Minister for Finance in respect of the increase in the number of bankruptcies in the first half of 2024, what proportion of bankruptcies is due to credit card debts.

The Minister of State for Culture, Community and Youth and Trade and Industry (Mr Alvin Tan) (for the Prime Minister and Minister for Finance): Sir, my response to this question will also address the other written Parliamentary Question filed by Mr Derrick Goh for today's Sitting.

Not all bankruptcy applications result in bankruptcy orders as applications may be withdrawn for various reasons, such as if the debtor settles the debt or enters into a debt repayment plan with the creditors. The number of bankruptcy orders in the first half of 2024 has been stable compared to the same period in the last few years and remains below pre-COVID-19 levels. The household debt situation in Singapore also remains stable. Non-performing loans (NPLs) are less than 1% of all loans to individuals extended by financial institutions as of the second quarter of 2024. Credit card delinquency rates have also remained stable in the same period. Corporate NPLs have remained low at about 2% as of the second quarter of 2024.

Slightly over two-fifths of bankruptcy orders were due to business failures in the first half of 2024. These debtors borrowed from a range of sources, including banks, credit card issuers, licensed moneylenders and private individuals.

Borrowers who face debt repayment challenges can approach social service agencies, such as Credit Counselling Singapore, for help with debt management and restructuring or to work out appropriate debt repayment plans. Those with unsecured debt with financial institutions may sign up for a Debt Consolidation Plan to restructure their debt. When a bankruptcy application is filed as a last resort, the Ministry of Law’s (MinLaw's) Official Assignee administers a Debt Repayment Scheme to help eligible debtors manage their debt and avoid bankruptcy.

It is also important to ensure that Singaporeans borrow prudently. To mitigate the risk of over-indebtedness, the Monetary Authority of Singapore (MAS) requires financial institutions to implement a range of safeguards. For example, requirements on total debt servicing and loan-to-value ratios limit the size of property loans that a borrower can take on. For credit cards, borrowers are subject to minimum income requirements, credit and income checks, and an industry-wide borrowing limit also applies.

Our national financial education programme, MoneySENSE, educates the public on money management skills as well. These include advising consumers to spend within their means, borrow prudently and manage credit card bills to avoid high interest charges.

Mr Speaker: Mr Yong.

Mr Melvin Yong Yik Chye (Radin Mas): Sir, I thank the Minister of State for his reply. According to statistics from the MAS, bad credit card debts and credit card rollover balances are increasing. While I note from Minister of State's reply that the correlation between such unsecured debt and bankruptcy remain stable and is manageable for now, I would like to highlight that it is important for us to look at the entire suite of credit card and credit card-like facilities. I would like to ask if the MAS could include debts from Buy Now Pay Later (BNPL) services into its monitoring of bad credit card debts as these services provide a line of credit to some who would otherwise not qualify for credit card. Essentially, what we deem as vulnerable consumers. We should track BNPL schemes just as closely as credit card debt, given that they provide similar credit facilities.

Mr Alvin Tan: Sir, I thank Mr Melvin Yong for his supplementary question. In fact, in Singapore, the BNPL sector is still relatively small and transactions now total about 1% of total credit and debit card payments in the first half of 2023.

But I would like to assure the Member that MAS continues to monitor this sector and has guided firms to establish an industry-led code of conduct to mitigate the risks of consumer over-indebtedness. This code includes safeguards, like credit assessments and limits on outstanding payments, assuring responsible lending practice. But I still also want to assure Mr Melvin Yong that MAS will consider stronger regulations if necessary, although the industry now currently relies on self-regulation, given BNPL transactions remain very small compared to other means of payment. But we are looking at this carefully. I thank the Member for his suggestion.

Mr Speaker: Mr Derrick Goh.

Mr Derrick Goh (Nee Soon): Mr Speaker, Sir, my question to the Minister of State is on his point relating to the considerations of stronger regulations by MAS. Would those considerations include requiring BNPL players to report to the Credit Bureau for data so that all players, including banks and financial institutions, could use those data?

The second question would be, given the downtrend of the United States Federal Reserve rates and forecasted interest rates coming down, does the Minister of State see improvements in the bankruptcy orders, which he states as being stable? Over time, would he see those improvements? And for segments that he says are stable, are there any sub-segments that are of concern that he notes in his analysis, whether it relates to businesses or individuals?

Mr Alvin Tan: Sir, I thank Mr Derrick Goh for his supplementary questions. I will take the second question. The first one, I think I had explained to Mr Melvin Yong that currently, while regulation over BNPL is largely industry-led and driven by the code of conduct, MAS will look into this carefully. And I thank both Mr Melvin Yong and Mr Derrick Goh for their suggestions.

With regard to Mr Derrick Goh's second question, let me share just two things. One, to reiterate the point that while bankruptcy applications have picked up in the first half of 2024, not all of these bankruptcy applications result in bankruptcy orders.

If you look at the data, actually, bankruptcy orders have not increased in tandem with the higher number of applications. One of the reasons might be due to the debt repayment scheme administered by the Official Assignee from MinLaw's Insolvency Office. This is related also because of the fact that debtors, for example, can settle their debt or enter into a debt repayment plan with a creditor. So, although you see a higher number of applications, the bankruptcy orders are actually stable.

On the second point, I thought it is worth also talking about and giving some assurances to the Member that we are still monitoring this closely, but to reflect this with regard to stress tests. I mentioned earlier on that bankruptcy orders have been stable despite elevated interest rates – and I know interest rates are now moderating – and also, economic uncertainties continue to persist. But our MAS stress tests suggest that even now, most households should still be able to service their mortgage debt, even under conservative scenarios of significant income losses of around 10% and even at elevated mortgage rates of 5.5%. Of course, this would change given that interest rates are moving in a different direction now.

And even in the above stress test scenarios, at elevated interest rates, households would still be able to service their mortgages from financial institutions, although a very small segment, the one that Mr Derrick Goh mentioned, of highly leveraged borrowers with below median household incomes, could be more vulnerable to repayment risks. But such borrowers also account for less than 5% of total mortgage loans by count and comprise mostly private housing loans.

Looking ahead, given the expected decline in domestic interest rates, we think that it should ease debt repayment for borrowers. MAS will look into these and monitor these carefully.