MAS rolls out borrowing limits on credit cards, unsecured debt

32,000 borrowers will be affected starting June.

The Monetary Authority of Singapore today revealed that it will introduce borrowing limits on credit cards and other unsecured loans.

The borrowing limits will be phased over four years to give affected borrowers more time to gradually reduce their debts.

In a bid to curb excessive individual debt, the MAS first announced in September 2013 that it planned to prohibit financial institutions (FIs) from granting further unsecured credit to a borrower whose outstanding unsecured debt across all FIs exceeds 12 times his monthly income for three consecutive months. 

Following further consultations with the Association of Banks in Singapore (ABS) and Credit Counselling Singapore (CCS), and feedback from the public, the MAS have decided to give over-extended borrowers more time to adjust to the new measure.

Starting June 2015, FIs will not be allowed to extend loans to borrowers with outstanding debts worth 24 times their monthly income. The cap will be narrowed to 18 times a borrower’s monthly income starting June 2017, and 12 times the monthly income starting June 2019.

FIs will not be allowed to grant further unsecured credit to an individual whose unsecured borrowings exceed the prevailing borrowing limit for three consecutive months.

Based on data from FIs and Credit Bureau Singapore as of end February 2015, 32,000 borrowers will be affected by the borrowing limit on 1 June 2015. They make up 2% of the total unsecured credit users.

Their borrowings pose no risk to the banking industry. The FIs’ aggregate non-performing loan ratio is low, at 1.1% as of end December 2014.