Over two-fifths of bankruptcy orders in the first half of 2024 due to business failures: MAS
Stress tests by the MAS have revealed that most households should be able to service their mortgage debt even under conservative scenarios of significant income losses.
SINGAPORE – Slightly over two-fifths of the bankruptcy orders in the first half of 2024 were due to business failures, with debtors borrowing from various sources including banks, credit card issuers, licensed moneylenders and private individuals.
This was stated by Minister of State for Trade and Industry and Monetary Authority of Singapore (MAS) board member Alvin Tan in Parliament on Oct 16.
He was responding to two questions by Mr Derrick Goh (Nee Soon GRC) and labour MP Melvin Yong (Radin Mas) on the causes for the rising number of bankruptcies in Singapore.
Mr Tan clarified that the number of bankruptcy orders in the first half of 2024 has been “stable” compared with the same period in previous years, despite a higher number of applications.
The number remains below pre-pandemic levels.
He said: “Not all bankruptcy applications result in bankruptcy orders, as applications may be withdrawn for various reasons, such as if the debtor settles the debt or enters into a debt repayment plan with the creditors.”
The delinquency rate for corporate non-performing loans (NPLs) stood at about 2 per cent in the second quarter of 2024. NPLs account for less than 1 per cent of all loans extended to individuals by financial institutions.
Credit card delinquency rates were similarly “stable” as at the second quarter of 2024, Mr Tan noted, responding to Mr Yong’s question on the proportion of bankruptcy cases caused by credit card debt.
Stress tests by the MAS have revealed that most households in Singapore should be able to service their mortgage debt even under conservative scenarios of significant income losses or elevated interest rates of 5.5 per cent.
However, Mr Tan noted that a segment of highly leveraged borrowers with below-median household incomes could be more vulnerable to repayment risk.
But these borrowers account for less than 5 per cent of total mortgage loans by count and comprise mostly private housing loans, he said.
“Looking ahead, given the expected decline in domestic interest rates, we think that it should ease debt repayment for borrowers, but MAS will look into these and monitor these carefully,” said Mr Tan.
To mitigate the risks of over-indebtedness, the MAS requires financial institutions to implement certain “safeguards”, Mr Tan said, adding that it is important to ensure that Singaporeans borrow prudently.
Such measures include limits on the total debt servicing ratio and loan-to-value, which restrict the size of property loans borrowers can take. Credit card applicants must also meet minimum income requirements.
Additionally, a borrowing limit is put in place across the entire financial industry for unsecured loans, for which lenders do not require borrowers to provide collateral but rely solely on their creditworthiness.
There is also the national financial education programme, MoneySense, which aims to educate the public on managing their money, such as how to spend and borrow responsibly and manage credit card bills to avoid high credit card interest.
Noting Mr Tan’s response on the stable number of bankruptcy orders, Mr Yong suggested monitoring debts from Buy Now, Pay Later (BNPL) services, which allow consumers to split their purchases into interest-free monthly instalments.
Mr Yong explained that such services provide a line of credit to those who would otherwise not have qualified for credit cards, or what he deemed as vulnerable consumers. He added that BNPL debts should be tracked “just as closely as credit card debt, given that they provide similar credit facilities”.
In response, Mr Tan pointed out that the BNPL sector in Singapore is still relatively small, accounting for only about 1 per cent of total credit and debit card payments in the first half of 2023.
The MAS has guided firms to establish an “industry-led code of conduct to mitigate the risks of over-indebtedness”, he said. The code includes credit assessments and enforcing limits on outstanding payments, so as to ensure responsible lending.
“I also want to assure Mr Yong that the MAS will still consider stronger regulations if necessary,” said Mr Tan.
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