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Singapore News
MAS sees risks in household and corporate debts
By Thomas Cho | Posted: 28 November 2012 2234 hrs

SINGAPORE: The Monetary Authority of Singapore (MAS) has warned households and businesses their ability to repay loans may be impaired if economic conditions worsen or interest rates rise.

The central bank said the corporate sector is more in debt this year than last year and household debt is increasing faster than household assets.

In its annual Financial Stability Review report, the MAS notes that even while the loan growth has slowed at major banks in recent quarters, their lending to consumers and companies remained high.

After reaching a three-year high of 12.8 per cent increase year-on-year in third quarter 2011, overall loan growth turned negative in third quarter this year contracting dome 2.3 per cent.

The growth of so-called non-bank lending was close to 10 per cent in the third quarter of this year.

This has given rise to some concern that borrowers may bet that interest rates will remain low forever.

Song Seng Wun, economist at CIMB Research, said: "The concern at this point is really very much of the very low interest rate which encourages borrowing. If interest rate should turn in an environment where there is still uncertain outlook, it could impact the household and the corporate sector."

Growth in non-bank lending has been led by property-related loans, manufacturing and non-bank financial institutions.

The current Housing and Development Board's concessionary mortgage rate stands at 2.6 per cent per annum while banks offer around 1.2 per cent to 1.7 per cent per annum depending on the Singapore's three-month interbank offer rate.

The current three-month interbank offer rate is 0.85 per cent.

Alvin Liew, a senior economist at United Overseas Bank said: "The central bank is firing a warning to the banking sector that they need to be vigilant and they need to know that eventually interest rate needs to rise and they need to make contingency plans should such a thing (loan default) happens in the near future."

According to the MAS report, property-related loans account for 46 per cent of outstanding Singapore dollar loans to non-bank customers, is below the average of 48 per cent in the past eight years.

Demand for private residential property has remained resilient despite government measures to cool the market.

"Over the last two years progressively, (the measures) basically held the increases in check to a certain degree itself. Although prices are still rising, it is rising at a slower pace," said Song.

MAS views household debt levels as not alarming, as it notes that Singapore's household net wealth stood at four times of gross domestic product. This is 7.3 per cent better than a year ago.

- CNA/fa

Link: http://www.channelnewsasia.com/stories/s...42/1/.html

Here's the direct link to the latest MAS Financial Stability Review.

Household balance sheet is described from pg 51 (or 63/88) onwards.

(29-11-2012, 12:19 AM)swakoo Wrote: [ -> ]Here's the direct link to the latest MAS Financial Stability Review.

Household balance sheet is described from pg 51 (or 63/88) onwards.

Thank you for this link.

I was rather shocked to see that the proportion of revolvers of credit card debt was a high 40+% in the 30-39 age category! Was expecting it to be just like 10+%. Why do so many like to revolve at 24% per annum?

(29-11-2012, 09:47 AM)Musicwhiz Wrote: [ -> ]I was rather shocked to see that the proportion of revolvers of credit card debt was a high 40+% in the 30-39 age category! Was expecting it to be just like 10+%. Why do so many like to revolve at 24% per annum?

Now that u mention it, i realise a high 37% of ALL credit card holders revolve their credit card debt! In spite of the excellent household balance sheet though on an aggregate level. Shocking...

Yes 37% is really a shockingly high number! Gosh.

Also, another observation - the LTV of 80% has dropped but I think this is because property prices have gone up, so the V part of the LTV has increased therefore the % has gone down. Absolute quantum of the loans are still high and if you notice, mortgage loans make up 75% of a household's total liabilities which I felt was super high!

(29-11-2012, 09:47 AM)Musicwhiz Wrote: [ -> ]I was rather shocked to see that the proportion of revolvers of credit card debt was a high 40+% in the 30-39 age category! Was expecting it to be just like 10+%. Why do so many like to revolve at 24% per annum?

There is no "like" or "don't like". Many people in the age group of 30-39 are at the point where their expenditure is the highest, and career is just starting to pick up (if they make it). Marriage, kids, house, parents, car, etc. So some do it because they have to (temporary cash flow problems), some out of ignorance (overspend), some intentionally (business needs, personal cash flow needs).

Credit card debt, while they may be devastating to certain groups of individuals involved in excessive borrowing, cannot compare in quantum to the time bomb that is the housing market loan now simmering under the radar in Singapore.

(29-11-2012, 10:21 AM)thefarside Wrote: [ -> ]Credit card debt, while they may be devastating to certain groups of individuals involved in excessive borrowing, cannot compare in quantum to the time bomb that is the housing market loan now simmering under the radar in Singapore.

Hmm, well though the quantum of mortgage loans is obviously much higher than credit card loans, the cost of such loans is also very much lower (averaging maybe 1% p.a. compared to 24% p.a.). So the debt servicing ratio of a typical household will not be very much affected even if mortgage loans continue to surge; whereas the cost of maintaining credit card debt is much higher and so would affect household savings more, I feel.

I also agree those in the 30-39 age group tend to have the highest expenditure in terms of house, kids, car etc. But if their careers are assumed to be taking off, why take on more debt? Their increase in salaries should be more than sufficient for their spending needs.

(29-11-2012, 10:06 AM)swakoo Wrote: [ -> ]

(29-11-2012, 09:47 AM)Musicwhiz Wrote: [ -> ]I was rather shocked to see that the proportion of revolvers of credit card debt was a high 40+% in the 30-39 age category! Was expecting it to be just like 10+%. Why do so many like to revolve at 24% per annum?

Now that u mention it, i realise a high 37% of ALL credit card holders revolve their credit card debt! In spite of the excellent household balance sheet though on an aggregate level. Shocking...

The graph looks deceptive at 1st glance as it looks like those >50 (lowest bar graph) may have "waken" up and has a much lower % in revolvers. On closer examination, the zero axis is 25% and those >50 is at a still shocking high of 30%!

Now, when I stroll along Orchard Road and I see those shoppers carrying many shopping bags from branded shops, my perception will be, they must be credit card revolvers!

(29-11-2012, 10:47 AM)Musicwhiz Wrote: [ -> ]I also agree those in the 30-39 age group tend to have the highest expenditure in terms of house, kids, car etc. But if their careers are assumed to be taking off, why take on more debt? Their increase in salaries should be more than sufficient for their spending needs.

Hi Musicwhiz, I will reply to your question above with my same answer. Not trying to be clever, but I think you need to consider needs beyond what is immediately obvious to a casual observer / browser of data.

Quote:Many people in the age group of 30-39 are at the point where their expenditure is the highest, and career is just starting to pick up (if they make it). Marriage, kids, house, parents, car, etc. So some do it because they have to (temporary cash flow problems), some out of ignorance (overspend), some intentionally (business needs, personal cash flow needs).

If one look at chart 2.5.13 (Credit Card Rollover Ratio), only an average of 15-16% of outstanding balances are rolled over every month. And this has remained stable since 2005 or so. This is far below the ratio of number of people who rollover, assuming that they have equal balances. So most people rollover only a small portion of their oustanding (those who do so out of need/ignorance), and they pay it down (most of them).

Lastly, if you look at chart 2.5.6 (Household Debt), the red slice (credit/charge card loans) provides a good feel of the scale of credit card loans in the grand scheme of things.

Quoted from the article page 51

"Prior to the collapse of Lehman in 2008, the rise in household net wealth was driven by increases in the value of financial assets, comprising Central Provident Fund (CPF) balances and pensions, cash and deposits, shares and securities and insurance funds (Chart 2.5.2). After the Lehman crisis, the increase in household wealth has been driven primarily by a rise in the value of property assets"

Once the investors refocus back to grow financial asset (e.g. shares and securities), instead of property assets, will it be the start of bull in stock market, the same one as pre-2008?