PERSONAL CREDIT LINES

PERSONAL CREDIT LINES:

(Review of eligibility criteria): 1.

Mr Seah Kian Peng asked the Senior Minister in light of the significant increase and accumulation of debts incurred by individuals in the last 12 months, whether MAS will review the eligibility criteria of personal credit lines being extended to these individuals.

The Minister for Finance (Mr Tharman Shanmugaratnam) (for the Senior Minister): Mr Speaker, Sir, total consumer loans grew by 10% year-on-year in

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September 2008. Two-thirds of the increase over this period were due to an increase in housing loans, which is not surprising given the buoyant property market in 2006 and 2007. Housing loans are, of course, secured on the property that is being financed and are subject to the Monetary Authority of Singapore's (MAS) prudential requirements on their maximum loan-to-value ratios. In addition, banks will conduct rigorous credit assessments and consider the risk profile of the borrower, his debt servicing to income ratio and the value of the collateral before granting a housing loan. Car loans, which are also secured credit, have only increased marginally over the same period while share financing, which is the third major component of personal credit lines typically, has fallen. So the bulk of the increase being 10% year-on-year in September was due to housing loans.

As for unsecured credit to individuals, total outstanding balances on credit and charge cards have grown over the past 12 months, consistent with the growth in previous years. However, reflecting the use of credit and charge cards more as convenient payment instruments than anything else, the percentage of outstanding balances rolled over for more than one month, in other words, where it is really a form of credit, has remained fairly constant at around 15%. Moreover, the charge-off rate, which measures credit card debt written off by banks and card issuers as a percentage of the rollover balance, remains low at 3% to 4%.

MAS' current rules on the eligibility criteria for personal unsecured credit are not too loose, and are in fact stricter than in most other countries. Firstly, applicants for credit cards and other unsecured credit facilities must meet the minimum annual income requirement of $30,000. Secondly, the maximum credit that can be

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granted by a financial institution to an individual on a credit card is limited to twice his monthly income. Other unsecured credit facilities granted to an individual are similarly capped by a separate limit of twice the monthly income.

The increase in consumer loans that we have seen has been in line with economic growth and the upturn in property purchases in recent years, and it is not in itself a cause for concern. We would, of course, be concerned if financial institutions are lending without regard to credit standards and risk assessment, and that borrowers are taking credit without considering if they can afford it. But the prudential and lending criteria employed by financial institutions and required by MAS address these concerns by maintaining sound lending standards at all times. MAS would continue to watch this, of course, including not just the charge-off rates but just the absolute growth in loans to individuals, and, if necessary discuss the matter with financial institutions. But, as of now, the charge-off rates are low, the institutions have proper risk assessment procedures for granting of personal loans as with other loans and of now, there is no concern. And we will continue to expand MoneySENSE, which is the national financial education programme that is expanded on the ground, so that we can help more Singaporeans acquire the skills and knowledge to manage their day-to-day finances, make prudent investments and plan for their longer-term needs.

Mr Seah Kian Peng (Marine Parade): Sir, I have just one supplementary question. Concerning the level of personal unsecured credit loans, can the Minister tell us how much is this amount and how this compares against other countries, in terms of the debt accumulated by individuals here?

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Mr Tharman Shanmugaratnam: Mr Speaker, Sir, if I were to exclude housing loans, car loans and share financing, all of which are essentially secured. If you look at credit card loans, the loans have grown by about $840 million as of September 2008, year-on-year, in other words, compared to September 2007. That is a fairly significant year-on-year growth, about 18% or 19%. As I mentioned, the amounts rolled over for more than a month have actually remained constant though, at about 15%, and the charge-off rates, which are essentially bad loans, have also remained relatively constant at 3%-4%. I think we should watch this carefully because the 18%-19% growth in credit cards, even in line with past economic growth, is something which we should watch carefully. MAS is monitoring this but, as of now, there is no serious cause for concern, and we will stay in close touch with the banks.