ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

Note: This was posted in the online forum letters section of the Straits Times.

The Straits Times
www.straitstimes.com
Published on Oct 18, 2012
Personal debt bomb

THE real star behind the recent Monetary Authority of Singapore statistics is consumer loans and not business loans ("Business loans surge in sign of upswing"; last Thursday).

Business loans actually contracted from July 2009 until March last year, and showed anaemic growth until the second half of last year.

By contrast, total consumer loans have never declined and have grown steadily with usually double-digit growth year on year. Even in the depths of the financial crisis, total consumer loans were growing at a high single-digit pace from October 2008 to September 2009, before spurting into double-digit territory a year ago.

The growth of total consumer loans has quickened from 10 per cent a year ago to more than 18 per cent for the past three months to reach $150 billion. Business loans managed only a double-digit growth from October to November last year.

The performance of business loans therefore pales in comparison with the growth of consumer loans.

The fast growth can be explained by housing loans. January 2008 housing loan figures were already 16 per cent higher than the corresponding figure in 2007. This double-digit performance lasted until October 2008, when growth figures slipped into the high single-digit figures before going back into double-digit growth in July 2009. Total housing loans are now $111 billion.

Since May last year, housing loans have been growing at more than 20 per cent year on year, a growth rate that must be the highest ever seen in Singapore.

Two other milestones which merit mention are that the total number of main credit cards crossed six million in October last year; and second - which is of greater concern - that rollover balances breached the $4 billion mark in November. This is the amount that is not paid by cardholders and on which interest is charged at usually 24 per cent per annum. Rollover balances have been growing at an average annual rate of 11.5 per cent for the past two years.

Personal indebtedness in Singapore is, therefore, growing unabated and the pace has quickened this year. The recent big surge in housing loans and the growth of rollover balances raise the question of whether Singaporeans, already facing one of the highest debt-to-income ratios in the world, have placed themselves in a very precarious situation.

If the economy stumbles and real estate prices decline, many individuals will be unable to pay off their debts.

Kuo How Nam

"If the economy stumbles and real estate prices decline, many individuals will be unable to pay off their debts."

And the interests will go up as well.

As usual , banks in HK and Spore are v depending on housing loans to grow their loan biz.

Not sure if such a scenario as described by the writer will come to pass. Many articles have been written about how prudent we are in terms of strengthened household balance sheets and low debt-servicing ratios (i.e. <35%).

Question is - would a severe downturn really cause many to be in financial trouble as they have over-extended themselves?

My understanding is that so many Singaporeans are cash-rich that they can afford to plonk down money for downpayments of expensive resale housing and private condominiums. Add to this the many luxury cars, bling and branded goods you see everyday, it's hard to imagine that it's all fuelled by personal debt. The truth may very well be that everyone is very cashed up and just willing to spend freely, and a downturn or loss of employment would not affect many except maybe to make them cut back on their discretionary spending.

Quote:The fast growth can be explained by housing loans. January 2008 housing loan figures were already 16 per cent higher than the corresponding figure in 2007. This double-digit performance lasted until October 2008, when growth figures slipped into the high single-digit figures before going back into double-digit growth in July 2009. Total housing loans are now $111 billion.

I think there was a discussion in this forum and there was a table that showed that the total housing loans vs the savings.
I remembered the ratio was quite ok.

Quote:Personal indebtedness in Singapore is, therefore, growing unabated and the pace has quickened this year. The recent big surge in housing loans and the growth of rollover balances raise the question of whether Singaporeans, already facing one of the highest debt-to-income ratios in the world, have placed themselves in a very precarious situation.

Source?

The writer should analyse and provide figures for the income vs loan ratio rather than focusing on the absolute debt.
Besides, the increase in population will easily increase the absolute debt but that does not mean that the per person's debt is increased significantly.

Same with credit cards. According to workforce statistics
http://www.mom.gov.sg/Publications/mrsd_...e_2011.pdf

There were 2.08 millions of labour force and assuming 70% of the labour force or 1.4 million people have credit cards, the per person rollover is around 4billion/1.4million = $2857.
Part of the rollover debt is likely to due to late payment and normally, the interest charge and late charge can be waived easily.
Some rollover debt may also be due to instalment payment(Best denki, Courts etc) that does not charge interest.

The situation is not that alarming as what the writer perceived.

Agreed likely most will be able to hold on to it. Is the new supply that will likely push down the price.
How far the price will come down depends much on the gov on tightening it back.

Interesting statistics from Credit Bureau of Singapore, published in Business Times October 13, 2012:-

1) Average monthly credit card balance per consumer has jumped 54 per cent to $5,034 in 2012 from $3,275 in 2002.
2) Average delinquency rate for credit cards dropped from 2.4 per cent of credit cardholders in 2002 to 2.07 per cent in 2012
3) Average monthly default rate has also remained low at 0.06 per cent in the past eight years
4) Women now make up 41% of all credit card customers against 33% in 2002
5) No. of credit card customers has almost doubled to 1.45 million over the same period.

Source: Credit Bureau of Singapore Statistics as reported in BT

Some conclusions we can draw from this:-

1) People are definitely spending more, with their average monthly bill being about 2x the size of mine!
2) Though deliquency rate has fallen, the pool of customers has also grown and as times have been stable without a major recession or downturn in Singapore, it's hard to make any conclusions about how people are managing their money
3) Default rate has remained constant as a %, but the absolute number of people defaulting has risen due to increase in pool of credit card customers.
4) Assuming number of customers doubled, number of women who swiped plastic has grown from 239,250 (33% of 725,000) in 2002 to 594,500 (41% of 1.45 million) in 2012. This is a 148% increase over 10 years.

Too bad no information was given on debt servicing ratios or household gearing ratios - that would give a clearer picture of how indebted people are with respect to mortgage loans, and not just credit card debt.

(18-10-2012, 09:34 AM)Musicwhiz Wrote: [ -> ]Interesting statistics from Credit Bureau of Singapore, published in Business Times October 13, 2012:-

1) Average monthly credit card balance per consumer has jumped 54 per cent to $5,034 in 2012 from $3,275 in 2002.
2) Average delinquency rate for credit cards dropped from 2.4 per cent of credit cardholders in 2002 to 2.07 per cent in 2012
3) Average monthly default rate has also remained low at 0.06 per cent in the past eight years
4) Women now make up 41% of all credit card customers against 33% in 2002
5) No. of credit card customers has almost doubled to 1.45 million over the same period.

Source: Credit Bureau of Singapore Statistics as reported in BT

Some conclusions we can draw from this:-

1) People are definitely spending more, with their average monthly bill being about 2x the size of mine!
2) Though deliquency rate has fallen, the pool of customers has also grown and as times have been stable without a major recession or downturn in Singapore, it's hard to make any conclusions about how people are managing their money
3) Default rate has remained constant as a %, but the absolute number of people defaulting has risen due to increase in pool of credit card customers.
4) Assuming number of customers doubled, number of women who swiped plastic has grown from 239,250 (33% of 725,000) in 2002 to 594,500 (41% of 1.45 million) in 2012. This is a 148% increase over 10 years.

Too bad no information was given on debt servicing ratios or household gearing ratios - that would give a clearer picture of how indebted people are with respect to mortgage loans, and not just credit card debt.

"Average" is normally skewed by ultra high spenders.
I thought "median" is likely to be a more realistic estimation of the typical household credit card debts.

Agree, yeokiwi. But mean was given instead of median, too bad.

Just like our median salary is about $3,700 (?), but the mean is much higher due to the super high earners!