Borrowers to get access to centralised repayment plans

Credit Counselling Singapore will offer a centralised repayment solution to those who have accumulated substantial unsecured debts above their annual incomes, announced Deputy Prime Minister Tharman Shanmugaratnam.

Speaking at an event to mark the 10th anniversary of Credit Counselling Singapore on Tuesday (Oct 28), Mr Tharman said that under the new repayment solution, borrowers will not have to approach multiple creditor banks to negotiate how to reduce their debts.

Instead, Credit Counselling Singapore - a non-profit organisation which provides counselling for financially distressed individuals - will coordinate across all of a borrower's creditor banks, and work out a centralised repayment plan.

The plan will take into account a borrower's income, expenditure, needs and loan obligations. All the leading retail banks have agreed to come on board the new centralised repayment system by the first quarter of next year.

The Association of Banks says financial institutions will contact affected customers with repayment plan details in the first quarter of 2015, and customers are also encouraged to update their income records with their financial institutions.

The Monetary Authority of Singapore's (MAS) new rules on unsecured credit, which come into effect in June 2015, will disallow financial institutions from extending further credit to borrowers who have accumulated unsecured debts that exceed their respective annual incomes.

To complement these rules, the Association says it has been working closely with Credit Counselling Singapore and financial institutions to put forward debt repayment plans, to help highly indebted customers gradually reduce their outstanding unsecured debts.

THE PROFILE OF A TYPICAL DEBTOR

Mr Tharman, who is also chairman of MAS, said the consumer credit situation in Singapore is on the whole, in good shape, because authorities have taken pre-emptive regulatory actions to tighten credit standards, help borrowers reduce their debts and empower individuals through financial education. Property cooling measures, for example, have led to a fall in the number of borrowers taking multiple housing loans, from 30 per cent of new housing loans in 2011, to about 13 per cent as of Q2 2014.

When it comes to credit cards, most card-holders here are prudent and the bad debts written off have remained stable at between 4 and 5 per cent of the average credit card rollover balances. But there is concern about a small group of borrowers who have over-extended themselves, said Mr Tharman.

The MAS estimates that about 3 per cent of unsecured credit borrowers have accumulated unsecured debts that exceed their annual incomes. Although it did not give absolute numbers, there are more than 1.4 million credit card-holders as of 2013, so the 3 per cent could mean some 42,000 people.

Mr Tharman said they are mainly not from the lower-income group. Close to 65 per cent earn incomes above the median, and more than half hold tertiary education qualifications. Credit Counselling Singapore has found that people fall into debt problems for various reasons, such as over-spending on travel and cars as well as job related changes, while higher-risk borrowers are another concern.

The profile of a typical debtor could look something like this: A 40-year-old man, who owes money to about seven creditors. He is usually married with children, and has at least A-level qualifications.

His average disposable income is about S$3,000, but his debt to financial institutions could be as high as S$84,000 - 28 months of his disposable income. The top reasons for indebtedness include overspending, retrenchment, pay cuts, and gambling.

CONSUMER CREDIT FROM MONEYLENDERS

About 1 per cent of total consumer credit is obtained from moneylenders, and Mr Tharman said although this is a small segment, there is a risk that some borrowers may turn to multiple moneylenders out of desperation.

To help Singaporeans manage their finances well, the Government, financial industry and Credit Counselling Singapore are working together on a three-pronged approach. This includes tightening credit standards, helping borrowers reduce their debts and empowering individuals to take charge through financial education.

"While we are in a good position overall, there are some individuals and families who have over-extended themselves and are especially at risk when interest rates rise, as they will," said Mr Tharman. "We have to help people avoid getting into this situation of being over-extended but we also have to help those who are already over-extended, who have already run up large debts, and help them to work down their debts. 

"This is not just a financial sector objective, this is ultimately a social mission," he added. "It is about helping people avoid getting caught in a spiral of borrowing and avoid major difficulties that they and their families face when they are saddled with a pile of debts."