CREDIT FACILITIES

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CREDIT FACILITIES: The following Question stood in the name of Mdm Cynthia Phua –

10. To ask the Senior Minister (a) whether he will give an update on the number of credit card defaults in the past six months; and (b) whether MAS will ask credit card companies to refrain from using various gimmicks, such as giving out crossed cheques when they are in fact debit notes, to lure cardholders to spend.

11.

Miss Penny Low asked the Senior Minister in view of the lowering of the minimum annual income threshold for unsecured credit facilities from $30,000 to $20,000 (a) what measures are in place to help ensure financial prudence on the part of both the creditor and debtor; and (b) whether there will be a danger of a sub-prime loans situation that affects heartlanders, especially given the downturn situation.

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Er Lee Bee Wah (Ang Mo Kio): Question No. 10, Sir.

Mr Lim Hng Kiang (for the Senior Minister): Mr Speaker, Sir, may I have your permission to take Question Nos. 10 and 11 together?

Mr Speaker: Yes.

Mr Lim Hng Kiang: Both Mdm Phua and Miss Low asked about the measures in place to regulate the credit card and unsecured credit lending practices of financial institutions (FIs). The unsecured credit rules are now applied in a consistent manner to both moneylenders and FIs. This is not a loosening of the rules. For the moneylenders, in fact, the new rules reflect a tightening. Overall, the new rules which set the annual income threshold for access to unsecured credit at $20,000 and the credit limit for this group of borrowers at two months their income, allow these Singaporeans modest levels of unsecured credit which they may need from time to time. They may also reduce the risk of such individuals turning to unlicensed moneylenders. Consistent with this objective, MAS has not lowered the minimum annual income threshold for credit cards, which remains at $30,000, as these are typically used to finance consumption expenses.

MAS has introduced several measures to mitigate the risks of over-borrowing by individuals from all income groups. These include more explicit requirements on disclosure to customers of charges, rates of computation, and consequences of late payment with regard to these cards and facilities. Banks and card issuers are also required to conduct comprehensive checks with the Credit Bureau before granting each new credit or charge card, or unsecured credit facility. The credit report sets out the number of credit lines the applicant already has and his repayment record. FIs are expected to

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take these into account in deciding whether to extend further credit.

Under the new rules, FIs are not allowed to make offers of unsecured credit facilities to customers, unless the customer has requested for these in writing. This follows similar restrictions on unsolicited offers of credit cards that are already in place. This means that, with effect from 1st March 2009, financial institutions are prohibited from sending any articles – such as cheques – that an individual can use to draw down on an unsecured credit facility, unless he has requested for the facility in writing, or unless the unsecured credit facility has previously been granted to that individual.

To date, the level of credit card debt level has also not deviated much from the historical average. The charge-off rate, which measures credit card debt written off by banks and card issuers, as a percentage of the rollover balance, has kept within the range of 3% to 4% over 2007 and 2008. There was a modest increase from 3.7% in Q3 of 2008 to 4% in Q4 2008. This compares with over above 8% during the SARS period. Credit card balances rolled over for a month or longer, which may indicate that some cardholders need longer than one month after due date to pay their credit card bills, averaged 15% in 2008. There was no noticeable increase in Q4 2008 from this full-year average. The 15% average for 2008 is comparable with the five-year average of 17% between 2004 and 2008, and below the 20% to 25% range recorded during the peak period between 1999 and 2003. Despite a slight increase in the ratio in January 2009, it is still too early to draw firm conclusions. MAS will continue to monitor these indicators.

Mr Speaker, Sir, lenders and borrowers both have a role to play in ensuring the use of unsecured credit and credit cards is responsible, sustainable and within the means of the borrower. The national financial education pro

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gramme, MoneySENSE, continues to work with industry associations such as the Association of Banks in Singapore (ABS) to educate consumers on the importance of saving and prudent borrowing.