Why Singapore should seriously worry over its rising unsecured credit

Is it a bigger issue than household debt?

According to CIMB, while it does not view rising overall household debt as a concern, it believes there is some reason to be concerned with the expansion of unsecured credit.

Here's more from CIMB:

Comparing the growth rates of household savings (deposits) and liabilities since 1998 and 2008, we note that while the growth in savings has outpaced the growth in liabilities since the Asian Financial Crisis (AFC), the two have grown at a similar pace of 6.1-6.2% since the Global Financial Crisis (GFC).

A close look at the CAGR rates of various liabilities on the household balance sheet highlights that credit card and other personal loans have grown at a faster pace than total liabilities since the AFC and GFC.

Since 3Q98, credit card loans have posted a CAGR of 12.6% and other personal loans have grown by 6.3%. This is compared to an overall 6.1% growth in total liabilities over the period.

From 3Q08 to 2Q13, credit card loans have increased 8.6% while other personal loans have risen 8.9%, compared to the 6.2% growth in total liabilities.

We believe the high growth rates of unsecured debt are what prompted MAS’s recent move to tighten rules on the issuance of credit cards and unsecured credit facilities and we expect this growth rate to come off in coming quarters with the new measure keeping personal spending in check.

The profile of Singapore’s household balance sheet has undergone some changes since the AFC and GFC, most notably the rising proportion of credit card loans.

A breakdown of household assets and liabilities as of 3Q98, 3Q08 and 2Q13 shows that the contribution of credit card loans to total liabilities has grown 2-2.5x from its low base of 1.4% in 3Q98.

This is countered by a 4-5% pt reduction in the share of car loans after MAS introduced a 50-60% loan-to-value (LTV) cap on motor vehicle loans earlier this year.

On the asset side of the balance sheet, property’s share of total assets has fallen by 2-3% pts, which is made up for by the rising share of life insurance and pension fund assets.