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    Apr 07, 2015

    More time for overextended borrowers to reduce debts

    MOST people here battling heavy credit card debt - and other unsecured loans - will be given more time to get their finances in order before new rules kick in.

    The Monetary Authority of Singapore (MAS) has relaxed a June 1 deadline designed to stop people drowning in unsecured debt from taking out new loans.

    Unsecured loans differ from home and car loans, for instance, as they do not require collateral.

    Under the new timeframe, the rules will kick in over four years, with only the most heavily indebted people affected from June 1.

    Also, a new scheme has been unveiled to help overextended borrowers get back into the black.

    MAS said yesterday the decision to give most over-extended borrowers more time comes after consultations with the Association of Banks in Singapore (ABS) and Credit Counselling Singapore (CCS), and public feedback.

    Wong Nai Seng, MAS' assistant managing director of policy, risk and surveillance, said yesterday: "Most borrowers do not spend or borrow beyond their means, but some may need help to reduce their debts gradually."

    In 2013, MAS announced that all unsecured creditors would face new rules from June 1 this year.

    But in a revised, graduated timeframe, from June 1, those with total unsecured debts above 24 months of their monthly income for more than 90 days will not get more unsecured loans.

    Then, from June 1, 2017, those with total unsecured debts of more than 18 times their monthly income will be affected, and from June 1, 2019, those with total unsecured debts of more than 12 times will see the rule kick in.

    Only a small proportion of borrowers here are overextended.

    Data from financial institutions and Credit Bureau Singapore show that, as of February, 32,000 borrowers had total interest-charging unsecured debts above 24 times their monthly income.

    They make up two per cent of the total unsecured-credit borrowers, and their borrowing poses no risk to the stability of the banking industry here. The total non-performing loan ratio for financial institutions is low, at 1.1 per cent as of December last year.

    Including them, people with total interest-charging unsecured debts above 12 times monthly income made up about 84,000, or 5 per cent, of unsecured borrowers.

    ABS, leading retail banks and card issuers yesterday announced a repayment assistance scheme, set up to help borrowers reduce their unsecured debts over time.

    The scheme lets those pay down the debt exceeding 12 months of their monthly income at a lower interest rate of 5 per cent a year and over eight years.

    Non-profit group CCS will coordinate the scheme.

    ABS director Ong-Ang Ai Boon urged "highly indebted borrowers" to take up the repayment assistance scheme, and said borrowers have to apply for it by Dec 31.

    Eligible borrowers must be Singaporean or permanent residents earning under $120,000 a year, and be prompt in making monthly unsecured loan repayments.

    CCS president Kuo How Nam said the key reason for huge debt is overspending on luxury goods or lifestyle wants. He said many lived beyond their means and needed to make lifestyle changes.