On 30 September 2016, the Monetary Authority of Singapore
("MAS") issued a consultation paper
inviting comments on a proposed change to the industry–wide
borrowing limit for unsecured credit. This note provides a brief
summary of the proposed legislative amendments.
Limiting additional unsecured credit facilities for individuals
whose outstanding unsecured debt exceed 12 times their monthly
At present, financial institutions
("FIs") are not allowed to grant further
unsecured credit – whether by allowing the drawdown of
existing credit limits, approving credit limit increases, or
granting new unsecured credit facilities – to individuals
whose outstanding unsecured debt exceed the industry-wide borrowing
limit for three consecutive months (the
"Balance-to-Income ratio", or
"BTI ratio"). The term "outstanding
unsecured debt" refers to balances on which interest is
chargeable across unsecured credit cards, charge cards, and other
unsecured credit facilities.
MAS intends for the borrowing limit to be reduced from a BTI
ratio of 24 times as at present (and which has been the case since
1 June 2015), to a BTI ratio of 12 times from 1 June 2019. The
existing borrowing limits are currently being phased-in to allow
existing over-extended borrowers more time to pay down their debts.
The phasing-in would be as follows:
24 times monthly income
18 times monthly income (starting
from 1 June 2017); and
12 times monthly income (starting
from 1 June 2019).
MAS has however observed that some borrowers with BTI ratios
above the eventual borrowing limit of 12 times their monthly income
are still continuing to add on to their pre-existing high debt
levels. Thus, in order to assist these borrowers in better managing
their outstanding unsecured debts – in light of the eventual
borrowing limit – MAS proposes to amend the unsecured credit
legislation from 1 June 2017 to disallow FIs from granting new
unsecured credit facilities and credit limit increases to borrowers
with outstanding unsecured debt exceeding 12 times their monthly
income at the point of application.
The current exclusions for need-based loans (for example, for
medical and education reasons) will continue to apply, i.e.
borrowers may still apply to FIs for such excluded loans.
MAS has proposed for these legislative amendments to be made to
the Banking (Credit Card and Charge Card) Regulations 2013 as well
as the relevant various MAS notices.
The consultation period ends on 31 October 2016.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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