Market for unsecured loans, overdrafts still attractive

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Link: http://www.channelnewsasia.com/stories/s...23/1/.html

Market for unsecured loans, overdrafts still attractive
By Thomas Cho | Posted: 07 September 2012 1655 hrs


SINGAPORE: The take-up rate of unsecured loans from individuals is slowing down amid an uncertain global economy.

Excluding home loans, recent data revealed that borrowings from consumers increased 16.77 percent to S$51.2 billion in July, compared to almost 19 percent last year.

Analysts are anticipating competition in the unsecured personal loan segment to intensify as banks seek to improve their market share.

Still, the market for unsecured loans and overdrafts remain attractive with the total number of accounts growing over 22 percent over the last two years.

According to the Credit Bureau, the total number of unsecured overdrafts and personal loan accounts stood at 1.43 million as at July this year - just 9.45 percent growth over a one-year period.

Banks are pulling out all stops to attract consumers to take up these loan packages, including offering cashback and giving away shopping vouchers, tablets and back massagers.

These include car loans, credit cards, share financing and other products like unsecured credit lines.

Although the uncertain economic outlook has dampened loans growth, this segment remains attractive as banks regard it as a 'safe' market.

Mr Jonathan Koh, Associate Director of UOB Kay Hian Research, said: "The Singapore market is considered a safe market because firstly, it is quite easy to get financial information on individuals - the CPF statement is there, the income tax returns can be checked and verified, so it is quite a straightforward process to have a good assessment of the credit worthiness of individuals."

To entice borrowers to switch banks, some players have gone out of their way to compare the lower interest rates charged on unsecured loans to credit cards.

Unsecured flexi-loan interest rates can range from 16.88 percent to 17.95 percent - cheaper than credit card interest rate of 24 percent per annum.

However, for those earning annual income of less than S$30,000, these unsecured loans are still available to them but the interest charged is as high as 29.8 percent.

Meanwhile, borrowers who opt for a fixed monthly repayment plan could see interest rates drop to 5.8 percent for a one-year loan from some banks.

Mr Kuo How Nam, President of Credit Counselling Singapore, said: "The rates are slightly cheaper than what the credit cards are charging. It is very important that for person who is contemplating to switch that they do not consider this as a fresh source of credit."

Despite the competition, banks like Maybank say they have always focused on ensuring that their customers can afford to service their loans.

And there seems to be no compromise in the banks' asset quality in their drive to gain market share.

For some, tying over their short-term financing needs would mean turning to pawnshops instead.

Ms Magdalene Eng, Senior Brand Manager of Maxi-Cash Group, said: "My customer base is in their 30s to the 60s, and they require short-term financing for their needs and they usually bring in their gold, diamonds or watches for pawning."

Analysts say Singapore's consumer loan market, including housing and bridging loans which totalled close to S$200 billion in July, remains attractive for banks.

- CNA/de
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