Big spender, bigger borrower: Singapore household debt-GDP ratio hits 6-year high

If you think Asians are prudent, think again.

The West is all too popular for their consumers who buy more than they can afford, while Asians are being glorified for always tightening their purse strings. Not anymore.

A report by HSBC revealed that Singapore’s household debt as a share of GDP has increased to around 73% in 2013 from 48% before the global financial crisis, a notable increase compared to than UK’s ratio which is pegged at 72%, a more or less stable figure from its ratio 6 years ago.

In the last several years, consumer debt has surged across Asia, with striking increases in Malaysia and Thailand, and purchases not only included new and flashy condos but also cars, motorcycles and “everything else the heart desires.”

Here’s more from the report:

True, household lending in Asia is usually done on stricter terms, with loan-to-value ratios for mortgages, for instance, being a lot lower than in the US and the UK, and no complicated derivatives obscuring risk. This means that a sudden blow-up is unlikely. Still, the issue is troubling: it implies that consumer spending is to a large extent driven by leverage, and hence sensitive to a tightening in financial conditions, whether because of regulatory scrutiny or a broader rise in funding costs. Chart 4 also shows that – contrary to common perception – not all consumer lending is for housing purposes, with quite a large share of credit financing consumption directly (such as credit cards and auto loans). Our main point is this: household debt may not be as big a systemic financial risk as it was in the West, but it highlights a potential growth problem in Asia: without it, how resilient would consumption spending really be?