Revision of Metrics for Ensuring Appropriate Level of Household Indebtedness Given High Interest Rates
Prime Minister's OfficeSpeakers
Summary
This question concerns whether high interest rates necessitate a revision of MAS metrics for household indebtedness and the collection of stratified data like ethnicity, as raised by Mr Saktiandi Supaat. Deputy Prime Minister and Minister for Finance Lawrence Wong replied that MAS monitors interest rates and incomes through frameworks like the Total Debt Servicing Ratio, having raised the medium-term interest rate to 4% in September 2022. For unsecured credit, he highlighted the S$30,000 minimum income requirement and total borrowing caps intended to ensure debt remains sustainable relative to income. Deputy Prime Minister and Minister for Finance Lawrence Wong stated that current data shows stable credit quality with no observed deterioration in households falling behind on payments. He concluded that MAS continues to track a wide range of metrics to assess debt servicing burdens and ensure overall financial stability.
Transcript
4 Mr Saktiandi Supaat asked the Prime Minister (a) whether the persistently high interest rates after early 2022 necessitate a revision of the metrics that the MAS is using to ensure an appropriate level of indebtedness for Singaporean households; and (b) whether the Government plans to collect more stratified data points on debts and debtors, including the types of non-performing loans and the debtors' income levels and ethnicity, so as to develop a holistic preventive and rehabilitative strategy to help those struggling with debt.
Mr Lawrence Wong (for the Prime Minister): The Monetary Authority of Singapore (MAS) shares the concern that the higher interest rates globally and in Singapore could result in more indebtedness for households and more strain on their family finances. As such, MAS' regulatory requirements and the monitoring of household credit directly take into account changes in interest rate conditions and household incomes as key factors for debt sustainability.
MAS requires financial institutions (FIs) to implement specific safeguards to mitigate the risk of consumer over-indebtedness, particularly in relation to two common forms of consumer loans: firstly, mortgages, which form the largest component of a household's debt; and, secondly, unsecured credit cards which have interest rates that are typically higher than 26% per annum. Such safeguards ensure that debt taken on by a borrower is in line with income. Specifically:
(a) For property loans, the total debt servicing ratio and mortgage servicing ratio frameworks limit an individual's borrowing by capping their monthly mortgage repayment at a prescribed percentage of their income. The monthly repayment is calculated using the higher of a prescribed medium-term interest rate or the highest interest rate offered by the FI during the tenure of the property loan. In September 2022, MAS increased the medium-term interest rate by 0.5 percentage point to 4%, to ensure that individuals continue to borrow prudently as interest rates rise. The Housing and Development Board also uses a similar mortgage servicing ratio framework in relation to mortgage loans it offers.
(b) For unsecured credit cards, FIs may extend such facilities only to individuals with a minimum annual income of S$30,000. The total amount of unsecured borrowings across FIs is capped at the individual's annual income and facilities are suspended if the borrower is 60 days past due on his payments with the FI.
MAS closely monitors household debt holistically for financial stability purposes. The range of metrics MAS tracks assesses the borrowers' debt servicing burden relative to their income. From the data we track, household and individual credit quality has remained stable and we are not seeing a deterioration in the proportion of households falling behind or defaulting on their payments. MAS had also provided further details on household and individual debt trends in its reply to a Parliamentary Question in November last year. [Please refer to "Trend of Household and Individual Debts and Profile of Debtors", Official Report, 22 November 2023, Vol 95, Issue 117, Written Answers to Questions for Oral Answer not Answered by End of Question Time section.]