Singapore’s household and corporate debt situation holding up well to rising interest rates: Alvin Tan
SINGAPORE – The country’s household and corporate debt situation remains resilient despite rising interest rates, Monetary Authority of Singapore (MAS) board member Alvin Tan told parliament. Monday, May 9.
The number of financially troubled consumers who have sought help from banks is not high and has been declining over the past year, said Mr. Tan, who is also Minister of State for Trade and Industry.
He noted that the proportion of non-performing mortgages remained low, at less than 1% last year.
“The MAS stress test suggests that the median household mortgage service ratio should remain manageable even under significantly higher interest rate or lower income scenarios,” he said.
The mortgage service ratio refers to the portion of a borrower’s gross monthly income that is spent on paying off home loans.
Mr Tan added that the proportion of non-performing business loans also remained low at 2.6%.
“Here too, the MAS stress test suggests that debt service for Singapore-listed companies should remain manageable as interest rates rise, with most companies having sufficient revenues to cover their interest charges. and cash reserves to provide buffers.”
He was responding to a question from Mr. Saktiandi Supaat (Bishan-Toa Payoh GRC) on whether given the rise in interest rates there has been an increase in the number of consumers applying for management assistance debt and whether the government will put in place measures for consumers and businesses facing short-term liquidity problems.
Mr Tan said industry-wide credit relief measures have been gradually withdrawn, in line with a broader economic recovery and a steady decline in the number of requests for help.
These measures, introduced in March 2020, were intended to provide short-term relief to individuals and small and medium-sized businesses, as strict public health measures were causing temporary cash flow difficulties.
Mr. Tan added: “Conversely, recent market-driven interest rate hikes have been accompanied by continued revenue growth, which mitigates their impact on the debt servicing capacity of the most borrowers.
“Indeed, the debt relief programs put in place during the pandemic are not intended to insulate borrowers from the normalization of interest rates.”
Mr Tan added, however, that a small segment of households, particularly those with higher debt levels, may be more constrained by rising rates and should approach their lenders early to explore possible refinancing and repayment options. loans.
He added that the MAS has been working with the Departments of National Development and Manpower, the Housing Board (HDB) and financial institutions to establish “standardized interventions” for HDB home owners in financial difficulty. in case of late repayment.
These include potential solutions for loan restructuring, early referrals to appropriate social service agencies and, in some cases, helping them secure alternative HDB housing when foreclosures are unavoidable.
Mr. Tan added that similarly, companies with low net profit margins should contact their lenders early to work out appropriate loan repayment plans.
He said: “More generally, everyone should exercise caution in their new borrowing. Households and businesses should plan for further interest rate increases and ensure their ability to repay their loans before making commitments. additional long-term funding.”
Mr. Saktiandi asked if it was possible to assess the future impact of rising interest rates on households and the proportion of those who are likely to be vulnerable to increases.
Mr. Tan replied that most households should still be able to service their mortgages and other debt securities as domestic interest rates rise in line with global rates.
He noted that overall household debt service capacity remained manageable, with the median total debt service ratio (TDSR) standing at 43% last year, well below the recently tightened 55% threshold.
The TDSR threshold limits the portion of a borrower’s income that can be spent on monthly debt repayment. It was tightened last December as part of new measures aimed at cooling a buoyant real estate market.
Mr Tan added that consumers in financial difficulty can seek help through means such as debt management assistance from Credit Counseling Singapore or by taking up debt consolidation plans which can ease their debt burdens. refund.