Singapore Proposes Consumer-Credit Rules to Limit Bad Debt

Singapore’s financial regulator is proposing new rules for unsecured consumer loans to stem credit card delinquencies and protect clients from borrowing more than they can afford.

Under the Monetary Authority of Singapore’s proposals, credit card and other unsecured debt holders with loans 60 days past due or carrying a balance exceeding two months of income for half a year would be barred from borrowing without collateral, the banking and capital markets regulator said in a consultation paper today.

Singapore, home to Southeast Asia’s three largest banks including DBS Group Holdings Ltd. (DBS), saw lenders’ charge-off rates jump in the third quarter as the economy slows. Banks are seeking to boost fee income from services such as credit cards to help offset the region’s lowest loan profitability and a slowdown in borrowing.

“Lenders and borrowers both have a role to play in ensuring that credit cards and unsecured credit are used responsibly and within the borrower’s means to repay,” the central bank said in a statement.

Singapore’s charge-off rates, or the ratio of bad-debt write-offs to average outstanding credit card debt, jumped to 5.1 percent in the third quarter from 4 percent in the fourth quarter last year, according to MAS data.

Lending Slows

To keep debt loads from spiraling out of control, the MAS proposed that credit limit increases must be initiated by borrowers to eliminate unsolicited offers from credit card companies.

MAS proposals also include lender reviews of customers’ total outstanding debt and credit limits before issuing new cards or increasing credit limits. Billing statements should also clearly disclose the cost of delaying payments, the authority said.

Year-on-year loan growth for Singapore banks in October slowed to 17.9 percent, according to MAS data. Singapore banks earn the least on loans in the region, based on their average net interest margin of 1.99 percent, according to the most recent data compiled by Bloomberg.

Singapore’s economy is forecast by the government to grow at the slowest pace in three years in 2012 as faltering demand for its goods weighs on the Southeast Asian nation.

The economy will grow by 1 percent to 3 percent in 2013 after expanding about 1.5 percent this year, the Trade Ministry said in November. It had previously forecast growth of as much as 2.5 percent in 2012.

To contact the reporter on this story: Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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