MAS enforces new credit cap

Financial institutions can refuse individuals with debts amounting to six times their monthly income.

The Monetary Authority of Singapore (MAS) announced a new measure to help borrowers limit "excessive" unsecured debts.

According to an announcement, the Credit Limit Management Measure will cap the additional unsecured credit that a financial institution (FI) may extend to a borrower whose outstanding unsecured debts exceed six times his monthly income.

The measure will roll out on 1 January 2018.

FIs will not be allowed to increase the credit limit and grant new unsecured credit facilities to individuals whose unsecured debts exceed their monthly income six times.

Borrowers can continue to draw on their existing unutilised unsecured credit facilities. The new measure will not require borrowers to reduce the credit limit of their existing credit facilities.

MAS said the measure aims to pre-emptively cap borrowers' total credit limit before they are affected by the industry-wide borrowing limit.

"The vast majority of unsecured borrowers are borrowing within prudent limits," MAS said.

Since the introduction of the industry-wide borrowing limit in June 2015, the number of highly indebted borrowers – those with outstanding unsecured debts exceeding their annual income – has come down by about 21,000, from 5% to below 4% of total unsecured borrowers.

However, since January 2017, an average of about 4,000 borrowers per month have increased their unsecured debts to above 12 times their monthly income compared to the previous month.