MAS Tackles Singapore Bankruptcy, Debt, Loan Crisis
MAS says bankruptcy cases in Singapore saw significant numbers in the first half of 2024, with slightly over 40% of bankruptcy orders attributed to business failures. Debtors borrowed from various sources. These sources included banks, credit card issuers, licensed moneylenders, and private individuals, according to Minister of State for Trade and Industry, Alvin Tan. He addressed Parliament on October 16, responding to questions from Mr. Derrick Goh (Nee Soon GRC) and labour MP Melvin Yong (Radin Mas) on the causes behind the rise in bankruptcies.
Mr. Tan clarified that the number of bankruptcy orders remained stable compared to the same period in previous years. Despite a rise in applications, the numbers have stayed below pre-pandemic levels. Tan said, “Not all bankruptcy applications result in bankruptcy orders.” He explained that some debtors settle their debts or arrange repayment plans before receiving bankruptcy orders. Minister Alvin Tan is also a board member at the Monetary Authority of Singapore (MAS).
The delinquency rate for corporate non-performing loans (NPLs) stood at 2% in the second quarter of 2024. However, NPLs made up less than 1% of all loans extended to individuals by financial institutions. Mr. Tan reported that credit card delinquency rates remained stable during this period. This stability occurred despite the potential impact of rising interest rates.
MAS watchful of debt and bankruptcy in Singapore
Stress tests conducted by MAS indicated that most households can service their mortgage debt, even with elevated interest rates of 5.5%. However, a small segment of highly leveraged, lower-income borrowers could face greater risk of default. These borrowers, who account for less than 5% of total mortgage loans, predominantly hold private housing loans. As interest rates are expected to decline, MAS anticipates a reduction in debt repayment pressure. It will continue to monitor the situation closely.
To mitigate over-indebtedness, MAS requires financial institutions to implement safeguards. These safeguards include limits on the total debt servicing ratio and loan-to-value for property loans. Additionally, income requirements for credit card applicants and unsecured loan borrowing limits serve as protective measures. MAS also promotes financial education through the MoneySense program, which teaches Singaporeans how to manage debt responsibly.
Mr. Yong suggested keeping a closer watch on debts from Buy Now, Pay Later (BNPL) services. These services have gained popularity among vulnerable consumers. Many of these consumers might not qualify for credit cards. Although the BNPL sector remains small, accounting for only 1% of total credit and debit card payments, Mr. Tan assured Parliament that MAS will continue to monitor the sector and introduce stricter regulations if necessary.
