Singapore’s central bank, the Monetary Authority of Singapore (MAS), has launched a new initiative to prevent individual borrowers from accumulating excessive debt through unsecured credit facilities like personal loans and credit cards.
The new Credit Limit Management Measure, which comes into effect from 1 January 2018, will put a cap on additional unsecured loans for individual borrowers who already have outstanding unsecured loans exceeding 6 times their monthly income. Such individuals will not be permitted to have outstanding unsecured loans exceeding 12 times their monthly income.
As per the new move, any individual whose outstanding unsecured debt is more than 6 times their income per month will not be permitted to get a hike in credit limit or new unsecured loan avenues, if it’s resulting in their total credit limit crossing 12 times their income per month.
The move is expected to help about 60,000 such individuals, who currently have their outstanding credit limit at over 6 times their monthly income. According to the MAS, the new measure will help prevent individuals from becoming highly indebted.
Currently, an individual is allowed to borrow up to 18 times their monthly income. This limit is set to come down to 12 times with effect from 1 June 2019. The industry-wide borrowing limit announced in mid-2015 stops individuals from taking any new unsecured credit and using their existing unsecured facilities if their outstanding unsecured debts continue to exceed the prevailing limit for three straight months.
According to a report, the MAS said the initiative doesn’t stop borrowers from using their existing unused unsecured credit limit. Also, borrowers will not be required to reduce the limit of their existing credit facilities.
MAS’s Assistant Managing Director for Policy, Risk & Surveillance, Loo Siew Yee, said the central bank will continue to take measures to help individuals manage their debt. Loo Siew added that this latest measure is preventive in nature and it will help borrowers avoid high debt levels.
Ms. Loo Siew also said the new measure will complement the industry-wide borrowing limit and several other such schemes that are already in place. According to a report, the industry-wide borrowing limit has helped bring down the number of highly indebted borrowers by about 21,000.