Ridiculous to allow more unsecured personal loans when credit card debts and delinquencies are ballooning

March 4, 2009 by admin
Filed under: Current Affairs, Financial Matters 

Written by Ng E-Jay
04 March 2009

In this harsh economic environment where jobs losses are mounting by the day, it is no surprise that unsecured liabilities such as credit card debt is ballooning and defaults are on the rise. Yet, the Monetary Authority of Singapore (MAS) and Ministry of Law have seen it fit to allow more people access to unsecured credit facilities.

In a joint press release last Wednesday, MAS and the Law Ministry announced that from March 1, the minimum annual income requirement for unsecured bank credit facilities will be $20,000, down from $30,000. Individuals will be able to borrow up to twice their monthly income.

The minimum annual income requirement for credit cards remains unchanged at $30,000 for individuals aged 55 or younger and $15,000 for those over 55.

Until now, individuals earning below $30,000 per year have been able to seek unsecured loans only from non-bank lenders such as GE Money and SingPost or other licensed moneylenders.

The purported reason given by MAS for such a move was to “allow access to unsecured credit to more individuals who may have occasional genuine borrowing needs” and to ensure “a more consistent regime” between banks and other licensed moneylenders.

In reality however, neither banks nor other lenders care whether the borrowing needs of consumers are “genuine”, using MAS’ disingenuous choice of vocabulary. Their only concern is whether the consumer is likely to default or be late in payments.

The part about ensuring “a more consistent regime” between banks and other moneylenders is also nothing more than making sure that banks have a greater share in this lucrative business, and are not left behind while others enjoy the Government-sponsored privilege of charging consumers exorbitant interest rates.

Currently, banks charge an interest rate of 16 to 18 percent per annum for unsecured credit line facilities, and anywhere from 18 to 24 percent per annum for credit card debt. This is more or less in line with what non-bank lenders charge for their unsecured credit facilities.

The latest move by MAS and the Law Ministry therefore does not give consumers more advantageous options, but merely more chances to borrow even more money at the same high interest rates as before.

Is this a wise thing to do in such a treacherous economic climate?

On the very next day after MAS and the Law Ministry gave their press release on this topic, the Straits Times carried two articles, entitled “Credit card debts ballooning” and “More missing credit card, personal loan payments”.

Evidently, the economic crisis has taken its toll on consumers. It was reported that credit card debt hit an estimated $3.4 billion last December, the highest for that month in 20 years. Rollover balances jumped more than 13 per cent last year, and have been climbing steadily since 2006.

Also, more consumers are missing their credit card and personal loan payments. According to the latest figures from Credit Bureau Singapore (CBS), the percentage of consumers who missed at least one credit card payment rose slightly from 1.48 per cent in December 2007 to 1.67 per cent last December. Similarly, the percentage of delinquent personal loans that were 30 or more days past due increased from 3.73 per cent in December 2007 to 5.34 per cent in December last year.

Given this alarming rise in indebtedness and delinquency, I seriously question the wisdom of MAS and the Law Ministry in allowing banks to offer more unsecured credit facilities to all and sundry in such uncertain times.

Such a move only benefits the banks’ bottom line and profit margin, but does little to offer consumers a lasting and sustainable solution to their cashflow needs.

Rather than merely increasing the availability of unsecured credit facilities without caring how the money will be used by consumers, the Government should instead enact measures that help consumers save costs such as reducing the GST for essential products and services, and help citizens obtain jobs and earn more by instituting a “Singaporeans first” policy.

Such concrete measures would be of far greater benefit to Singaporeans and would provide a better and more sustainable solution to helping people tide over the global economic armageddon.

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Comments

10 Comments on Ridiculous to allow more unsecured personal loans when credit card debts and delinquencies are ballooning

  1. The Singapore Daily » Blog Archive » Daily SG: 4 Mar 2009 on Wed, 4th Mar 2009 11:23 am

    2. [...] – Sgpolitics.net: Ridiculous to allow more unsecured personal loans when credit card debts and delinquencies are ballo… – Tan Kin Lian’s Blog: Consider a relief loan for needy workers – Singapore Social Activist: [...]

  2. Ridiculous to allow more unsecured personal loans when credit card debts and delinquencies are ballooning : The Wayang Party Club on Wed, 4th Mar 2009 11:48 am

    3. [...] Read rest of article here [...]

  3. Iklan Mudah Blog » Blog Archive » Ridiculous to allow more unsecured personal loans when credit card debts and delinquencies are ballooning on Wed, 4th Mar 2009 12:04 pm

    4. [...] Read rest of article here [...]

  4. xtrocious on Wed, 4th Mar 2009 2:51 pm

    5. Contrary to popular (?) belief, I don’t see it as an absolute bad thing…

    Giving this group of people access to credit may be a life saver if they really need it – or would you rather they go to loan sharks (which I understand is usually the case)…

    In any case, the limit of 2x monthly salary means they only get S$3333 of credit – it is not really a lot but it may help to pay for electricity and food until the next pay check comes in…

    In case you don’t know it – in other countries, you don’t even need an income to get a credit line or credit card…

  5. S. Lim on Thu, 5th Mar 2009 8:54 am

    6. xtrocious on Wed, 4th Mar 2009 2:51 pm, wouldn’t be better to lower the cost of living rather than getting the people of Singapore more into debt. Thanks but no thanks. Remove GST completely? Given the public service and monopolies of Power/Water and Transport companies, how much money are we allowing them to profit? How about reducing the lending rates by at least half?

    Since the government is soooo generous with financial liberties, how about more civil liberties? Our society is soooo matured isn’t so we do not need our a nanny state anymore.

  6. eternalhap on Thu, 5th Mar 2009 9:20 pm

    7. i agree with 1.xtrocious on Wed, 4th Mar 2009 2:51 pm

    It’s not a really really big deal.

  7. xtrocious on Fri, 6th Mar 2009 1:58 pm

    8. Hi S.Lim,

    I agree with you…

    We also have to lower costs…

    But nothing should work in isolation…

    Ideally, it should be a concerted effort by everyone in every area as most of us will soon be running on survival mode…every little bit counts…

    But my main point is the relaxation of the law is not really a big deal – from personal experience, banks have their own guidelines and even if the person meets the minimum requirements, they won’t necessarily approve the loan…

    The MAS can relax all they want but if the final decision to lend or not lies with the banks…they are profit-oriented and I am sure they will weigh the risks and returns very carefully

  8. auntie on Fri, 6th Mar 2009 2:25 pm

    9. Remove GST all together. Impossible, unless the ruling goverment is not PAP. It will be over LKY dead body for it to kill GST and let Singapore like HK. You killing the Golden Goose that feed their bloated pay cheque.

  9. The Singapore Daily » Blog Archive » Weekly Roundup: Week 10 on Sat, 7th Mar 2009 11:14 am

    10. [...] Building’ Propaganda from the 144th – My Sketchbook: Retrenchment forecasts – Sgpolitics.net: Ridiculous to allow more unsecured personal loans when credit card debts and delinquencies are ballo… – Tan Kin Lian’s Blog: Consider a relief loan for needy workers – Singapore Social Activist: [...]

  10. Susan on Wed, 17th Jun 2009 4:49 am

    11. You are part of the problem. I could pay my credit card debts if I could refinance at a lower interest, but the banks won’t re-fy because of my credit card debts.

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